Week 01 in Brief
- U.S. stocks ended closed lower on Friday, in a turbulent session that saw major benchmarks suffer weekly losses, following a weaker-than-expected jobs report.
- Investors remained optimistic that the monthly employment update won’t derail the Federal Reserve’s intention to wind down accommodative policies and eventually hike rates to combat inflation in 2022.
How did the major indices perform?
- The Dow Jones Industrial Average dipped 4.81 points, or less than 0.1%, to end at 36,231.66 after it carved out an intraday low at 36,111.53.
- The S&P 500 slipped 19.02 points, or 0.4%, to end at 4,677.03, but touched a low at 4,662.74.
- The Nasdaq Composite fell 144.96 points, or 1%, to close at 14,935.90, after hitting an intraday low of 14,877.63. The index stands about 7% below its recent peak at 16,057.44 put in on Nov. 19.
- The small-capitalization Russell 2000 index (RUT) closed 1.2% lower at 2,179.81.
- For the week, Nasdaq Composite dropped 4.5%, its sharpest weekly decline since Feb. 26, the S&P 500 slid 1.9%, and the Dow declined 0.3%. The Russell 2000 saw a weekly skid of 2.9%.
What drove the US market?
- Employment Data: The Dow Jones Industrial Average struggled to hold on to modest gains in late afternoon trading Friday, ending the session in the red along with the other major stock benchmarks as investors assessed the latest labor-market data.
- The U.S. economy added 199,000 jobs in December, well below economists’ forecast of 422,000, highlighting some impact of the spread of the omicron variant of the coronavirus on the jobs market. While the headline number of the jobs report was worse than expected, the economy still looked “hot” when considering details such as the drop in the unemployment rate and increase in average hourly earnings. Indeed, the U.S. unemployment rate fell to 3.9% from 4.2%, while average hourly earnings jumped 19 cents, or 0.6%, to $31.31, the jobs report showed, proving a bright spot for some.
- Investors believe may be viewing Friday’s job report as lackluster but also not damaging enough to give central bankers reason to pause what has been expressed as a plan to tighten financial policy sooner and faster than had previously been expected.
- The jobs report also comes during a week in which the yield on the 10-year Treasury surged to around 1.8% — pressuring growth stocks and bolstering financials. The continued climb for government debt was helping to contribute to pressure on the yield-sensitive tech sector, weighing notably on the tech-heavy Nasdaq Composite. Similarly, the large-capitalization Nasdaq-100 index dropped 4.5% in its sharpest weekly slump since February of last year.
Which US stocks were in focus Friday?
- Financial shares rose Friday to bring their weekly gain to 5.4% but the energy was the real winner, surging 10.6% for the week as investors bet on a better performance for cyclical in 2022 as rates rise.
- Those moves came as San Francisco Fed President Mary Daly on Friday said that she endorses a gradual rate increase at the same time as an unwind of the central bank’s roughly $9 trillion balance sheet, which she says should come sooner than the last normalization cycle.
- In individual stocks, Shares of Gap Inc. were in focus after Kanye West, now known as Ye, announced a partnership with luxury label Balenciaga on a Yeezy collection that will be available at Gap. Shares of the retailer closed 2.4% lower Friday.
- Boot Barn Holdings Inc. rose 0.6% after the retailer pre-announced fiscal third-quarter results, delivering numbers that beat Street expectations.
- CinCor Pharma Inc. was flat in its market debut Friday, after the Massachusetts-based biopharmaceutical company’s upsized initial public offering priced overnight at $16 a share, in the middle of the expected range of between $15 and $17 a share.
- Willis Towers Watson said it would change its Nasdaq stock ticker symbol to “WTW” at the open of market trading on Monday, Jan. 10. Its stock declined by 1.2%.
How did the European markets perform?
- European stocks closed lower on Friday as rising eurozone inflation and disappointing U.S. jobs data weighed on sentiment.
- Data showing a drop in German industrial output, and lingering worries about the surge in Omicron variant of the coronavirus hurt as well.
- The pan European Stoxx 600 declined 0.39%. Germany’s DAX slid 0.65% and France’s CAC 40 shed 0.42%. The U.K.’s FTSE 100 gained 0.47%, while Switzerland’s SMI edged up 0.04%.
- Travel and leisure were the worst-performing sectors, down by 1.6%. Basic resources, on the other hand, was the top performer, up almost 1.9%.
- Looking at individual stocks, ST Micro was among the best performing, up by 3.7% after reporting higher-than-expected sales in the fourth quarter.
- In the UK market, Anglo American Plc, BHP Group, Prudential, Rio Tinto, Legal & General Group, Barclays, BP, Standard Chartered, and Antofagasta gained 2 to 3%.
- Deutsche Bank was also in the spotlight on Friday after positive statements that the German bank is on track to hit key profit targets, Reuters reported. Shares of the firm rose 1.8%.
- In other stock news, Air France - KLM will need to raise fresh capital in 2022 of between 1 and 2 billion euros ($1.13 billion and $2.26 billion), Les Echos reported.
- Preliminary data showed Friday that headline inflation came in at 5% for the month, compared to the same month last year. The figure represents the highest ever on record and follows November’s all-time high of 4.9%.
- Data showed that Germany’s trade surplus dropped to its smallest level in November since 2011, according to Reuters. In addition, industrial production also fell 0.2% month-on-month.
How did Asian markets perform?
- Asian shares mostly rose on Friday, snapping two days of losses after expectations grew that U.S. jobs data due later in the day would reinforce the need for faster U.S. interest rate hikes.
- MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.7%, boosted by gains in Australia where the local benchmark climbed 1.3%, led by bank stocks.
- The Shanghai Composite fell 0.2% on Friday and notched a 1.7% weekly drop, while the Hang Seng Index rose 1.8%, helping it post a weekly gain of 0.4%, and Japan’s Nikkei 225 finished flat but down 1.1% on the week.
- Investors are likely adjusting to “attractive, cheaper” Asian stocks as the year kick off. Analysts believe that with rates about to go up, from a global risk diversification point of view, investors are likely moving their money from U.S. markets into Asian markets, specifically China because it’s increasingly independent of what the U.S. does.
Commodities and Bonds
- The yield on the 10-year Treasury note rose 3.6 basis points Friday to 1.769% for the biggest weekly gain since September 2019 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. Treasury yields and prices move in opposite directions.
- Oil futures fell Friday, as the market weighed supply concerns from the unrest in Kazakhstan and outages in Libya against a U.S. job report that missed expectations and its potential impact on Federal Reserve policy.
- Brent crude settled down 24 cents, or 0.3%, to $81.75 a barrel, while U.S. West Texas Intermediate (WTI) crude was down 56 cents, or 0.7%, at $78.90 a barrel.
- Brent gained 5.2%, while WTI gained 5% in the first week of the year, with prices at their highest since late November, spurred on by the supply concerns
- Gold futures for February delivery closed 0.5% higher, settling at $1,797.40 an ounce, but with the most-active contract down 1.7% for the week.
- The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down 0.6% Friday and off 0.2% for the week.
- Bitcoin was trading down around 2.8% at about $41,889.
Investors will parse earnings from major US banks (JPMorgan Chase, Wells Fargo, BlackRock & Citigroup) & Delta airlines among others, and also parse key consumer & producer inflation reports, business optimism, and consumer sentiment.