S&P 500 Notches Worst Week Since March 2020

All three finished the week with sharp losses. The S&P 500 fell 5.8% for the week, its largest decline since the Covid pandemic roiled markets in March 2020. The Dow fell 4.8% for the week, its biggest drop since October 2020.

The once-hot crypto market also had a crazy week, reinforcing investors’ concerns that there is nowhere to hide from the current market turmoil. One of the largest crypto lending platforms, Celsius Network LLC, told customers on Sunday it was pausing all withdrawals. The anxiety spread quickly throughout the sector all week. Companies like Coinbase announced big layoffs and prices for bitcoin and other cryptocurrencies tumbled.

Markets of all stripes are facing a reckoning. Decades-high inflation is roiling consumers, and investors are wondering if central banks like the Federal Reserve might act too aggressively to fight it and end up tipping the economy into recession. The Fed signaled this week that it would continue lifting rates at the most rapid pace in decades, which could further weigh on stocks.

The S&P 500 entered a bear market on Monday and continued falling Tuesday. Stocks rallied Wednesday after the Fed announced its biggest interest-rate increase since 1994, then reversed course Thursday as investors digested the reality of continued inflation. 

“The big question is, ‘Will the Fed tighten so much as to cause a recession?’ That’s what the stock market is trying to discount,” said Jay Willoughby, chief investment officer at TIFF Investment Management.

All 11 sectors within the S&P 500 have fallen at least 15% from their recent highs, with seven in bear market territory. Friday’s winners were communication services and consumer discretionary, while energy and utilities lagged behind. 

The recent rate increases reverse a prior cycle of loosening monetary policy that allowed prices for both stocks and bonds to rally in recent years. Prospects for repeated rate rises throughout the rest of the year have lent to fears that rapid tightening could reduce growth. U.S. mortgage rates recently reached their highest level in more than 13 years. Recent economic data have shown sharp declines in key sectors.

Hani Redha, a portfolio manager at PineBridge Investments, said it is possible that inflation could still climb further in the coming months as energy prices remain elevated.

“The central banks, who have been our friends for a very long time, are telling us we should expect pain,” Mr. Redha said. “That inflation number is the only thing that matters right now. Even if we see growth slowing a lot, that will not be enough to cause the Fed to change course.” 

Tech stocks rose.

Twitter

added 42 cents, or 1.1%, to $37.78;

Meta Platforms

gained $2.87, or 1.8%, to $163.74; and

Microsoft

advanced $2.68, or 1.1%, to $247.65.

“Are we just facing a profit recession or an ongoing economic recession? And that’s still uncertain,” said Michelle Cluver, associate portfolio strategist at Global X.

Brent crude, the international benchmark for oil prices, fell $6.69, or 5.6%, to $113.12 a barrel.European natural-gas prices rose 5.4% Friday, putting them up 51% for the week. Moscow’s move to slash natural-gas exports to Europe this week has pitched the continent’s energy crisis into a dangerous new phase that threatens to drain vital fuel supplies and kneecap the continent’s economy. In U.S. trading,

Diamondback Energy,

Devon Energy

and

ConocoPhillips

all fell more than 8%.

Signs remained that investors sought assets viewed as safe, such as the U.S. dollar and U.S. government bonds. The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, rose 0.9%. In bond markets, the yield on the benchmark 10-year Treasury ticked down to 3.238%. Yields fall as prices rise. 

“We are closer to a bottom,” said

Josh Emanuel,

chief investment officer of Wilshire Funds Management. He said that equity and bonds markets have already priced in most of the economic and earnings risk. Mr. Emanuel’s firm has reduced exposure to long-duration bonds and favored value equities recently.

The dollar value of bitcoin and other cryptocurrencies showed tepid signs of stabilizing after tumbling sharply over the 10 days prior.  

Overseas, the pan-continental Stoxx Europe 600 added less than 0.1%.

In Asia, the

Bank of Japan

maintained ultralow interest rates on Friday, confirming that it won’t join the Federal Reserve and other major global central banks in tightening monetary policy. Japan’s Nikkei 225 stock index fell 1.8%. 

South Korea’s Kospi edged down 0.4%, while China’s Shanghai Composite added 1%.

—Pia Singh contributed to this article.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Hardika Singh at hardika.singh@wsj.com