The Nasdaq and S&P 500 have closed lower, falling for a third straight session as investors reacted to the Federal Reserve's latest aggressive move to rein in inflation by selling growth stocks including technology companies.
The Fed lifted rates by an expected 75 basis points on Wednesday and signalled a longer trajectory for policy rates than markets had priced in, fuelling fears of further volatility in stock and bond trading in a year that has already featured bear markets in both asset classes.
The US central bank's projections for economic growth released on Wednesday were also eye-catching, with growth of just 0.2 per cent this year, rising to 1.2 per cent for 2023.
Jitters were already present in the market after a number of companies - most recently FedEx Corp and Ford Motor Co - issued dire outlooks for earnings.
As of Friday, the S&P 500's estimated earnings growth for the third quarter is at 5.0 per cent, according to Refinitiv data.
Excluding the energy sector, the growth rate is at -1.7 per cent.
The S&P 500's forward price-to-earnings ratio, a common metric for valuing stocks, is at 16.8 times earnings - far below the nearly 22 times forward P/E that stocks commanded at the start of the year.
Of the 11 major S&P sectors, consumer discretionary and financial stocks were among the biggest decliners.
Shares of megacap technology and growth companies such as Amazon.com Inc, Tesla Inc and Nvidia Corp fell as benchmark US Treasury yields hit an 11-year high.
Rising yields weigh particularly on valuations of companies in the technology sector, which have high expected future earnings and form a significant part of the market-cap weighted indexes such as the S&P 500.
The slump in the S&P 500 tech sector has noticeably outpaced the decline in the benchmark index.
"If we continue to have sticky inflation, and if (Fed Chair Jerome) Powell sticks to his guns as he indicates, I think we enter recession and we see significant drawdown on earnings expectations," said Mike Mullaney, director of global markets at Boston Partners.
"If this happens, I have high conviction under those conditions that we break 3,636," he added, referring to the S&P 500's mid-June low, its weakest point of the year.
The S&P 500 lost 32.08 points, or 0.87 per cent, to end at 3,757.06 points, while the Nasdaq Composite lost 156.15 points, or 1.39 per cent, to 11,064.04 and the Dow Jones Industrial Average fell 115.39 points, or 0.38 per cent, to 30,068.39.
Major US airlines - which have enjoyed a rebound amid increased travel as pandemic restrictions end - were also down, with JetBlue Airways Corp, United Airlines and American Airlines all falling for the third straight day.
Darden Restaurants Inc slid after the Olive Garden parent reported downbeat first-quarter sales.