After a largely sleepy summer, the stock market roared to life on Friday as investors sold off stocks amid concerns that the Federal Reserve is poised to increase a key interest rate.
Before Friday, when the Standard & Poor's 500-stock index fell 2.45 percent, markets had remained fairly steady since early July. The S&P 500 had not seen a gain or decline of greater than 1 percent since July 8.
But investors appeared to get the jitters after Eric Rosengren, the Boston Federal Reserve president, said in a speech Friday morning that "a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy."
The Fed is slated to decide later this month whether to raise its benchmark interest rate for only the second time since the Great Recession. Central bank officials have been divided on whether to move amid a cloudy outlook for the U.S. economy. Since the beginning of the year, the recovery has been repeatedly threatened - by fears of a slowdown in China, Britain's decision to leave the European Union and a temporary slump in hiring at home. But each time the nation's economy has pulled through, if slightly weakened.
Speaking before markets opened on Friday, Rosengren said that the risks to the recovery are moving into balance, which many investors took as a sign that the Fed could hike rates this month. Rosengren also warned that waiting too long to move could destabilize the financial market, particularly in commercial real estate.
Rosengren is just one voice on the Fed's policy-setting committee, however. And on Friday morning, another influential official, Fed. Gov. Daniel Tarullo, suggested that he is still not ready to raise interest rates. He said the recovery's momentum appears to be slowing down and pointed out that inflation has been running below the Fed's target of 2 percent for several years.
Still, his comments were not enough to reassure investors, who continued their sell-off throughout the day. On Friday, the Dow Jones industrial average fell 2.13 percent. The tech-heavy Nasdaq sank 2.54 percent. The one-day drop, though, does not necessarily signal that we're in for a sustained decline in the markets.
"I'm certainly not enjoying today's market theatrics, but I'm not particularly concerned either," said Brad McMillan, chief investment officer of Commonwealth Financial Network, in a research note. McMillan said that's because the fundamentals of the economy, including consumer spending, remain relatively healthy.