US stocks ended flat on Friday, after indices at times struggled to head amid a sharp drop in blue chip Nike Inc., but benchmarks posted gains for the week to following two solid sessions for the wider stock market.
On Thursday, the Dow Jones rose 507 points, or 1.48%, to 34,765, its biggest two-day point and percentage gain since March 8, 2021, according to Dow Jones data. The S&P 500 rose 53 points, or 1.21%, to 4,449, and the Nasdaq Composite gained 155 points, or 1.04%, to 15,052.
For the week, the Dow Jones rose 0.6% while the S&P 500 was up 0.5% and the Nasdaq gained less than 0.1%, according to FactSet data.
What drove the market?
U.S. stock indexes swung between gains and losses in mixed trading on Friday, threatening to end the recovery after the Federal Reserve’s policy meeting this week, as the market fell back under pressure amid concerns over China , COVID-19 and US politics.
Shares have been weighed down by a long list of concerns ranging from disruptions in the global supply chain during the pandemic to the impending deadline of the federal debt ceiling in the United States and to the debt problems of real estate giant China. Evergrande Group, according to Matt Peron, research director at Janus Henderson. He said in a telephone interview on Friday that “the market has been a bit under pressure in recent weeks”, calling the consolidation “healthy” after its strong advance.
Investors were worried on Friday about Evergrande’s ability to meet its obligations, as well as the “huge leverage effect” of the Chinese real estate sector, but the potential for damage beyond its borders would likely be “very limited” Alonso Garza, an investment specialist at JP Morgan Private Bank in Miami, said in a telephone interview on Friday. “It wouldn’t be a disaster for the financial system outside of China,” Garza said, as other countries appear to have “very little exposure” to Chinese real estate.
The tech-laden Nasdaq Composite Index was under pressure as Treasury yields began to climb steadily following the Fed’s policy statement on Wednesday, with the benchmark 10-year Treasury rate at about 1.46% Friday. Rising returns affect the discount rate used for stock valuations, and technology stocks are particularly sensitive to higher returns because of the rapid earnings growth assumptions built into their valuations.
The Fed meeting revealed that central bankers were forecasting a possible rate hike in 2022, signaling they were ready “to get into this inflation situation and make sure it is contained,” Garza said. at MarketWatch. While Garza believes the rise in inflation is transient, with JPMorgan anticipating a first rate hike in early 2023, he said it was good to see the Fed “ready to act if necessary”.
“You can nibble on market valuations a bit, but runaway inflation could destroy everything,” Garza said.
China’s crackdown on bitcoin on Friday also hurt some tech stocks. Crypto-exchange Coinbase has plummeted, as has retail platform Robinhood which in the last quarter made more than half of its transaction-related income from crypto.
“Stock markets continue to reflect a standoff between the bulls and the bears, with markets heading for a mixed week,” wrote Mark Hackett, chief investment researcher at Nationwide.
Friday’s lackluster action comes after two strong days of gains for Wall Street stocks following the Fed policy meeting on Wednesday. The discussion of the Fed cutting its bond purchases has been an “overhang” for the market, Peron said, as investors waited for a possible announcement this year.
Indeed, Cleveland Federal Reserve Chairman Loretta Mester said on Friday that she supported the start of the reduction in monthly purchases of Treasury bills and mortgage-backed securities by the Fed from November, with a view to ending it in mid-2022. Mester is not currently a voting member. Federal Open Market Committee, but it will be next year.
Investors also continue to watch for the latest news on China’s Evergrande, a real estate developer that helped spark a rout on Monday, amid fears of global contagion from the leveraged company. As of Thursday, bondholders had still not received money from Evergrande which was due to make an interest payment of $ 83.5 million on the dollar bonds, the Wall Street Journal reported.
The company has a 30-day grace period to make a payment, but otherwise Evergrande could trigger a default. Those stocks fell 12% in Hong Kong on Friday. Elsewhere, media reported on Friday that the company’s electric vehicle unit had not paid suppliers for months, with employees also not receiving any wages for September.
Meanwhile, House Speaker Nancy Pelosi on Wednesday vowed not to let public funding expire next week, allaying some investor concerns that the policy could lead to a partial government shutdown and a default in the government. American debt which could disrupt the markets.
Separately, President Joe Biden urged those eligible to “go for the recall,” in a speech Friday, following an unusual move by the head of the Centers for Disease Control and Prevention, which rescinded the recommendation to ” a group of advisers that booster doses of a COVID-19 vaccine should only be offered to people over 65 and those with weakened immune systems, advocating that it also be offered to frontline workers, including nurses, teachers and supermarket staff.
On the data front, new home sales in the United States rose 1.5% to an annual rate of 740,000, the government said on Friday. The figure is the number of homes that would be sold over a one-year period if the same number were purchased each month based on the sales rate in July. Compared to a year ago, sales are down 24%. The median forecast of economists polled by MarketWatch was that new home sales would hit an annual rate of 720,000 for August.
Which companies were the center of attention?
- Actions of Nike Inc. fell about 6.3% after the sportswear maker reported quarterly sales below Wall Street expectations, and said wages and overheads weighed on revenues.
- Costco Wholesale Corp. Shares rose 3.3% as the retailer topped $ 60 billion in single-quarter net sales for the first time, hit $ 5 billion in annual profits, and grew at its fastest pace in over 20 years.
- Actions of Carnival Corp. CCL rose about 3% after the cruise line provided an update on its third quarter.
- Deutsche Bank analyst Michael Linenberg initiated a “short-term catalytic buy buy” on Delta Air Lines Inc.DAL stock rose 1.84% on Friday, saying he believes the underperformance so far this year will turn into outperformance in the coming months. Delta stock climbed 2.2%
- Actions of Roku Inc. fell 3.8% after Wells Fargo analyst Steven Cahall lowered the stock to equal weight versus overweight.
How did other assets trade?
- The yield on the 10-year Treasury bill rose about 5 basis points to 1.459% on Friday. For the week, the yield rose about 9 basis points.
- The ICE US Dollar Index, a measure of the currency against a basket of rivals, fell nearly 0.2% on Friday but rose about 0.1% for the week.
- Oil futures soared, with the US benchmark rising 0.9% to $ 73.98 per barrel. Gold futures also ended higher, up 0.1% to $ 1,751.70 an ounce, but were relatively flat for the week.
- In Asia, Hong Kong’s Hang Seng index fell 1.3% and recorded a weekly decline of 2.9%, while China’s CSI 300 index ended virtually unchanged and recorded a weekly decline of 0 , 1%. The Nikkei 225 index jumped 2% on the session, helping to narrow a weekly decline to 0.8%.
- In Europe, the Stoxx Europe 600 closed 0.9% lower but recorded a weekly gain of 0.3%, while the FTSE 100 index closed 0.4% lower but recorded a weekly gain. by 1.3%.
—Barbara Kollmeyer contributed to this report