On Friday morning, the sharp rise in government bond yields continued, pushing the yield on the benchmark 10-year Treasury to 2.938% from 2.917% on Thursday. Yields rise when bond prices fall.

Investors are facing one of the most uncertain times of their lives as they try to assess the impact rising rates will have on stocks. For two years, traders continued to flock to the US stock market, in part because of unprecedented levels of monetary stimulus that left few alternatives for consistently strong returns. Over the past few months, however, investors have had to reevaluate their strategies as the Fed embarked on a cycle of monetary tightening.

On Thursday, Fed Chairman Jerome Powell made it clear to investors that the central bank will step up the pace at which it tightens monetary policy. He indicated he was likely to raise interest rates by half a percentage point at his May meeting. A rate hike next month, following the Fed’s quarter-point hike in March, would mark the first time since 2006 that the central bank has raised its key rate in back-to-back meetings.

Mr Powell’s comments injected new volatility into a fragile stock market that has been battered this year by war in Ukraine, soaring inflation and rising Covid-19 cases in China. Many traders now fear that the Fed’s tightening cycle could tip the economy into a recession at a time when consumers are already feeling uneasy about the economy. Next week, investors will analyze new figures from the University of Michigan on consumer sentiment in April.

On Friday, UK data from the Office for National Statistics showed signs of consumer jitters. UK retail sales volumes fell sharply last month, weakening by 1.4%. This caused the pound to fall 1.2% against the dollar to its lowest level since 2020. London’s FTSE 100 stock index fell 0.8%.

“I think what you’re seeing is consumers are becoming a lot more hesitant,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown. “It’s a delicate tightrope that central bank policymakers have to tread right now. They need to put a lid on this boiling pot of inflation, but they don’t want the steam to be completely driven out of the economy.

Still, for now, investors have been encouraged by strong first-quarter earnings. Of the companies that have released reports so far, nearly 80% have exceeded analysts’ expectations. This helped provide some stability to the US stock market. Even with Thursday’s losses, the Dow Jones Industrial Average is currently on course to end the week with a 1% gain.

In premarket trading in New York, airline stocks rose. United Airlines Holdings gained 1.2% and American Airlines Group gained 0.8%. On Thursday, American said its sales hit a record high in March, the first month since the start of the pandemic in which the airline’s total revenue exceeded 2019 levels.

Later Friday morning, investors will analyze the earnings of companies such as Kimberly-Clark for clues about how the companies are handling supply chain issues and inflation.

In commodities, Brent, the international oil benchmark, fell 1.7% to $106.16 a barrel.

In currency markets, the ICE US Dollar Index, which tracks the currency against a basket of others, gained 0.4%, on pace with a gain for the week. Including Friday, the index climbed in all but two April sessions, thanks to geopolitical concerns and impending interest rate hikes by the Fed.

In overseas markets, the pancontinental Stoxx Europe 600 index fell 1.4%. In Asia, Hong Kong’s Hang Seng lost 0.2% and Japan’s Nikkei 225 fell 1.6%. The Shanghai Composite, on the other hand, bucked the trend, rising 0.2%.

Write to Caitlin McCabe at [email protected]