S&P 500 flirts with correction for fifth time on rate hike worries

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022. REUTERS/Brendan McDermid

By Devik Jain and Bansari Mayur Kamdar

(Reuters) - The S&P 500 index was closing in on a correction on Friday for the fifth time this week on worries about a series of interest rate hikes to tame inflation and losses in shares of Caterpillar and Chevron .

The benchmark index would have to close 10% or more below its record closing high reached on Jan. 3 to confirm it entered correction territory. It was last down 9.9% in volatile trading.

All the 11 major S&P 500 sectors were trading in the red. Small-caps also suffered, with the Russell 2000 index slipping 0.7%.

Caterpillar Inc (NYSE:CAT) fell 4.8% after the world's largest heavy-duty equipment maker warned of margin pressure from higher production and labor costs.

Chevron Corp (NYSE:CVX) fell 3.4% on downbeat fourth-quarter profit, weighing on the S&P 500 energy sector, which slid 0.4%.

However, Apple Inc (NASDAQ:AAPL)'s 4.1% jump kept declines on the Nasdaq at bay, after the iPhone maker posted record sales for its flagship phones in the holiday quarter.

Fourth-quarter earnings season has been mixed so far, with market participants closely watching how corporate America will respond to persistently high inflation and supply-chain snags.

Of the 168 companies in the S&P 500 that have reported earnings, 77.4% beat profit expectations, according to Refinitiv data.

"Supply chain issues are going to be with us for at least the first half of this year...," said Sam Stovall, chief Investment strategist at CFRA Research.

"These issues combined with higher interest rates and geopolitical tensions are going to continue to weigh on stocks for a while."

Meanwhile, data showed core personal consumption expenditure price index, the Federal Reserve's preferred gauge for inflation, rose 0.5% in December, in line with expectations. Although annual inflation increased at a pace last seen in the early 1980s.

At 10:16 a.m. ET, the Dow Jones Industrial Average was down 136.24 points, or 0.40%, at 34,024.54, the S&P 500 was down 3.82 points, or 0.09%, at 4,322.69, and the Nasdaq Composite was down 11.20 points, or 0.08%, at 13,341.59.

All three indexes are set for their fourth straight weekly fall, with the S&P 500 tracking its longest losing streak since Sept 2020.

Traders and big banks raised their bets to nearly five interest rate rises by December after the Federal Reserve hinted at a hike in March and warned of persistent inflation.

"While it doesn't feel fun, we are exiting a period of 0% interest rates and trillions of dollars in Fed asset purchases," said Darrell Spence, economist at Capital Group.

VF Corp (NYSE:VFC) slid 5.8% after the Vans owner cut its full-year revenue outlook, while storage hardware maker Western Digital (NASDAQ:WDC) fell 6% on bleak forecast.

Visa (NYSE:V) jumped 6.7% after beating quarterly estimates as more international travel and e-commerce drove an increase spending volumes.

Declining issues outnumbered advancers for a 2.60-to-1 ratio on the NYSE and for a 2.73-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 20 new lows, while the Nasdaq recorded six new highs and 611 new lows.