Worries about Federal Reserve tightening drove interest rates higher and undercut stocks Friday, with losses in megacaps overwhelming earnings-driven strength in financials. The Dow industrials declined 0.4 percent, the S&P 500 slipped 0.2 percent, and the Nasdaq also fell 0.4 percent. US Treasury yields jumped, the dollar dropped, and oil prices rose.

Fed Governor Christopher Waller's comment before the US open that the Fed needs to make more progress in meeting its inflation goals drove rates higher and hurt megacaps in particular. The market also reacted badly to a surprising uptick in consumer inflation expectations. The University of Michigan reported consumers' one-year inflation expectations jumped to 4.6 percent in April from 3.9 percent in March. Other indicators were mixed, with retail sales missing to the downside and industrial production a bit stronger than expected.

Megacaps did manage to recover from the day's lows with Alphabet and Meta ending higher to help the major indexes close only slightly lower. Meanwhile, financials advanced as investors were relieved that big banks kicked off the earnings season with good results, in contrast with concerns that recent banking troubles would be evident in the results. Regional banks fared much worse, however.

Among sectors, worst off were consumer staples, real estate, technology, health care, and utilities. Best performers included communications services, financials, and consumer discretionary.

Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.

Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.