Worries about slowing corporate earnings and the Federal Reserve's plans to rapidly raise interest rates dragged the Dow industrials to their worst day since 2020.

Friday's declines, which deepened throughout the session, undid gains from earlier in the week, extending a slide for stock markets. The broad-based $S&P 500 index(.SPX.US)$ fell at least 1% for the third consecutive week, while the tech-focused $Nasdaq Composite Index(.IXIC.US)$ lost at least 2% for a third straight week. Bond yields extended their gains, rising for three consecutive weeks.

Investors this week parsed first-quarter financial results from a range of firms in search of clues about the health of the economy, the consumer outlook and companies' ability to cope with inflation. Of the companies that have reported so far, about 80% have beat analyst expectations, according to FactSet, which has helped provide some stability to the U.S. stock market.

Downbeat reports from healthcare and retail stocks, among others, contributed to Friday's losses.

Usually when the economy's slowing down, or there is a perception it'll slow down, there are obvious sectors to hide in. Those traditional sectors aren't as safe from an earnings basis as they are historically because they still are going to have negative impacts from inflation."

- Tavis McCourt, institutional equity strategist at Raymond James.

The $Dow Jones Industrial Average(.DJI.US)$ posted its worst one-day percentage change since October 2020, losing  981.36 points, or 2.8%, to close at 33811.40. The S&P 500 dropped 121.88 points, or 2.8%, to 4271.78, while the Nasdaq Composite fell 335.36 points, or 2.5%, to finish at 12839.29.

The recent rise in government-bond yields showed signs of steadying, with the yield on the 10-year Treasury note ending Friday at 2.905%, down two of the past three trading days. Yields staged a climb earlier Friday before reversing course. Bond yields rise when prices decline.

Some stocks fell substantially Friday after reporting results. Shares of $HCA Healthcare(HCA.US)$ dropped $58.80, or 21.8%, to $210.64 after the hospital chain lowered its guidance for the year. The company said volume and revenue for the first quarter were offset by higher-than-expected inflationary pressures on labor costs.

Healthcare stocks are often considered defensive, with money managers betting that consumers will pay medical bills before making discretionary purchases. The S&P 500's healthcare sector fell 3.6%, its worst day since June 2020.

$Gap Inc(GPS.US)$ shares fell $2.57, or 18%, to $11.72 after the retailer cut its fiscal first-quarter guidance and announced the departure of the president and chief executive of its Old Navy business. It was the stock's lowest close since July 2020.

Concerns about inflation and the pace of monetary tightening by the Fed also remained at the forefront of investors' minds this week. On Thursday, Fed Chairman Jerome Powell gave investors a clear signal that the central bank is ready to tighten monetary policy more quickly and indicated that it was likely to raise interest rates by a half-percentage point at its meeting in May.

A rate increase next month, following the Fed's quarter percentage point increase in March, would mark the first time since 2006 that the central bank increased its policy rate at back-to-back meetings.

Mr. Powell's comments injected fresh volatility into a stock market that has been whipsawed this year by the war in Ukraine and soaring inflation.

"The market is finally internalizing and factoring in the reality that the Fed really means what it says and it's not going to back down," said Tim Courtney, chief investment officer of Exencial Wealth Advisors. "Somebody had a saying, and it's pretty good: 'You don't fight the Fed when the Fed is fighting inflation.'"

Many traders are now worried that the Fed's tightening cycle could tip the economy into a recession. Next week, investors will parse fresh figures from the University of Michigan on April consumer sentiment.

"I think what you're seeing is consumers are becoming much more hesitant, " said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "It's a tricky tightrope that central-bank policy makers are having to tread right now. They need to put a lid on that boiling pot of inflation but they don't want steam to be driven out of the economy completely."

Shares of airlines held up better than the broader market. $United Airlines(UAL.US)$ added 61 cents, or 1.2%, to close at $51.46, while $American Airlines(AAL.US)$ slipped 4 cents, or 0.2%, to $20.18. On Thursday, American said its sales hit a record in March, the first month since the pandemic began in which the airline's total revenue surpassed 2019 levels. United said it has been able to pass the rise in fuel prices on to consumers.

Shares of $American Express(AXP.US)$ fell $5.20, or 2.8%, to $180.54 after the credit-card company logged first-quarter net income of $2.10 billion, down from $2.24 billion a year earlier, even as spending on travel and entertainment surged.

$Kimberly-Clark(KMB.US)$ jumped $10.41, or 8.1%, to $138.51 after the maker of Huggies diapers and Cottonelle toilet paper raised its sales-growth projection for 2022 and said first-quarter sales increased compared with the year before.

In commodities, Brent crude, the international benchmark for oil, fell $1.68 a barrel, or 1.6%, to $106.65. It fell 4.5% this week.

The Wall Street Journal Dollar Index, which tracks the currency against a basket of others, rose 0.6%, up for the past 15 out of 17 trading days. 

In overseas markets, the pan-continental Stoxx Europe 600 closed down 1.8%, dragged down by technology companies. Germany's DAX index fell 2.5%, while London's FTSE 100 fell 1.4%.

In Asia, Hong Kong's Hang Seng lost 0.2% and Japan's Nikkei 225 fell 1.6%. The Shanghai Composite, in contrast, bucked the trend, rising 0.2%.