The U.S. stock market experienced a significant sell-off on Friday, driven by hotter-than-expected inflation data and escalating concerns in the private credit sector. The S&P 500 Index retreated by over 0.6%, continuing a decline that began on Thursday, while the Dow Jones Industrial Average plunged approximately 600 points, or 1.73%, marking its worst single-day drop in months.
The primary catalyst was the release of the Producer Price Index (PPI) report for January (News 1) and February (News 2). The data showed persistent inflationary pressures, with the headline PPI rising 0.6% month-over-month—double economist forecasts. The core PPI, excluding food and energy, also climbed higher than expected. This data suggests that inflation is becoming embedded, particularly in the services sector, complicating the Federal Reserve's path to interest rate cuts.
Market participants swiftly reacted, with the Nasdaq Composite dropping 1.8% and Treasury yields surging. The CME FedWatch Tool indicated a sharp increase in the probability of another Fed rate hike by June, jumping from 40% to 65%. Financial and industrial stocks were hit hardest, with JPMorgan Chase falling 3.2% and Goldman Sachs dropping 3.8%.
Simultaneously, jitters in the $1.8 trillion private credit industry accelerated the market decline. Concerns were ignited after Blue Owl Capital, a firm with over $300 billion in assets under management, sold a private credit portfolio and limited investor redemptions. The situation worsened when a fund managed by Apollo Global Management slashed its dividend to preserve cash amid rising defaults. Stocks of major private credit firms like Blue Owl, Apollo, Ares, and Blackstone continued to fall sharply.
Geopolitical tensions also contributed to the risk-off sentiment, as increased odds of a U.S. attack on Iran pressured airline and travel-related stocks. The combined effect of sticky inflation, credit market stress, and geopolitical uncertainty has led to a broad market reassessment, with investors now anticipating a 'higher for longer' interest rate environment from the Federal Reserve.
