Week 02 in Brief
U.S. stocks closed mixed Friday as the major indexes suffered weekly losses triggered by the prospect of rising interest rates, weaker economic data, and the threat of the surging omicron variant. Investors also monitored a mixed set of bank earnings.
How did the major indices perform?
- The Dow Jones Industrial Average dropped 201.81 points, or 0.6%, to close at 35,911.81, weighed by declines in shares of Goldman Sachs Group Inc., JPMorgan Chase & Co., and American Express.
- The S&P 500 edged up 3.82 points, or 0.1%, to end at 4,662.85.
- The Nasdaq Composite advanced 86.94 points, or 0.6%, to finish at 14,893.75, after flipping between gains and losses during the trading session.
- For the week, the Nasdaq Composite and S&P 500 each slipped 0.3% while, the Dow fell 0.9%. The Nasdaq has fallen for three straight weeks, while the S&P 500 and Dow each booked two consecutive weeks of losses, according to Dow Jones Market Data.
What drove the US market?
- Stocks ended mixed Friday after sentiment on Wall Street appeared to sour in a tumultuous week of trade on heightened anticipation for higher interest rates and concerns over the economic outlook.
- Monetary Policy: Concerns about the near-term economic outlook and a bumpy rotation from high-flying stocks to cyclical appeared to contribute to market volatility. Federal Reserve officials have been signalling plans to begin tightening monetary policy through rate hikes this year to help combat hot inflation.
- In remarks Friday, New York Fed President Williams predicted inflation will ease from its current brisk pace. “With growth slowing and supply constraints gradually being resolved, I expect inflation to drop to around 2.5% this year,” he said.
- Federal Reserve Gov. Christopher Waller suggested in a Bloomberg TV interview earlier this week that as many as five interest-rate increases are possible in 2022, as the central bank aims to beat back rampant inflation. The policymaker said three rate hikes were a “good baseline” this year, though.
- Economic Data: The U.S. Department of Commerce released data Friday showing retail sales dropped 1.9% in December, exceeding the 0.1% decline forecast by economists polled by The Wall Street Journal. Analysts believe consumer price inflation could be weighing on retail spending, along with the rapid spread of the omicron variant. Some of the sharp declines in retail sales in December may be the result of households getting an earlier jump on their holiday shopping in October due to concern over “goods shortages and shipping delays” in the pandemic, according to a report by Barclays.
- Meanwhile, a closely followed gauge of U.S. consumer sentiment fell to 68.8 in January from 70.6 in the prior month, marking the second-lowest reading in a decade, with omicron concerns partly attributed to its drop-off. Sentiment fell sharply for households earning less than $100,000 but rose for those earning above that level. Especially with energy and food prices so high, which take up a much higher percentage of lower-income budgets than other expenses, financial stress is mounting on the 70% of U.S. households below the $100,000 threshold.
- Data also showed U.S. industrial output fell 0.1% in December after a revised 0.7% gain in the prior month and industrial-capacity use edged down to 76.5% last month versus 76.6% in the prior month.
Which US stocks were in focus Friday?
- Banks including JPMorgan Chase & Co. and Wells Fargo each reported stronger fourth-quarter earnings than forecast. Citigroup posted a decline in its quarterly profit. Citi’s shares fell around 1.3%, those for Wells Fargo climbed 3.7% and JPMorgan’s stock dropped around 6.2%.
- Asset manager BlackRock reported that its assets under management reached $10 trillion. However, the firm’s stock fell 2.2%.
- Shares of paint-maker Sherwin-Williams declined 2.8% after it lowered its guidance, citing supply shortages.
- Tesla’s stock was in focus after its CEO, Elon Musk, said the electric-vehicle maker would accept meme asset dogecoin as payment for some merchandise. Shares of Tesla rose around 1.8% while dogecoin changed hands at about 19 cents, up about 11.7%.
- Shares of Google parent Alphabet were in focus after The Wall Street Journal reported that Google misled publishers and advertisers for years about the pricing and processes of its ad auctions. Alphabet’s Class A shares edged up 0.6%.
How did the European markets perform?
- European stocks pulled back on Friday, following global momentum as a fresh round of hawkish comments from Federal Reserve officials resurfaced expectations for imminent policy tightening.
- The pan-European Stoxx 600 provisionally ended around 1% lower, with retail stocks dropping 2.3% to lead losses as almost all sectors and major bourses slid into negative territory.
- In terms of individual share price movement, French state-owned utility EDF plunged more than 14% after being ordered by the government to sell more of its cheap nuclear power to smaller rivals in order to curb electricity price rises. The company subsequently dropped its earnings guidance.
- At the top of the European blue-chip index, Britain’s Countryside Properties gained 8% as investors bought the dip following a 21% sell-off for the stock on Thursday.
- In corporate news, German software group SAP on Thursday reported a 28% jump in fourth-quarter revenue for its cloud computing business.
- On the data front, the U.K. economy grew by 0.9% in November, the Office for National Statistics said Friday, vastly outstripping expectations and taking its gross domestic product above its pre-pandemic level for the first time.
- Germany’s economy grew 2.7% in 2021 after a 4.6% plunge in 2020, fresh data showed Friday, as semiconductor shortages hit the automotive sector and further Covid-19 containment measures slowed the recovery for Europe’s largest economy.
How did Asian markets perform?
- Asian markets finished broadly lower today with shares in Japan leading the region.
- The Shanghai Composite fell 1%, contributing to a 1.6% weekly skid, while the Hang Seng Index gave up 0.2% in Hong Kong but notched a 3.8% weekly climb, and Japan’s Nikkei 225 shed 1.3% on the session contributing to a 1.2% weekly slump.
- The five-year Japanese government bond yield jumped to its highest since January 2016 and the yen rose after a Reuters report that Bank of Japan policymakers are debating how soon they can start an eventual interest rate hike. Such a move could come even before inflation hits the bank’s 2% target, sources said.
Commodities and Bonds
- The yield on the 10-year Treasury note rose 6.3 basis points Friday to 1.771%. Yields and debt prices moved opposite each other.
- Brent crude futures rallied 1.9% to a two-and-a-half-month high of $86.44 a barrel. U.S. West Texas Intermediate crude jumped 2.6% to $84.28. Both Brent and U.S. futures entered overbought territory for the first time since late October.
- Rising bond yields weighed on non-yielding gold, with spot gold down 0.31% at $1,816.53 per ounce.
- The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was up 0.4% Friday but still saw a weekly decline of about 0.6%.
- A bounce in the dollar dragged on the euro, which lost 0.34% to 1.14135.
- Sterling also slipped 0.22% to 1.36780, taking a breather after this week’s rally that pushed it to a 2-1/2-month high.
- Bitcoin was up 1% at $43,079 and looking at a weekly gain of 3.9%.
- The US market will be closed on Monday in observance of Martin Luther King Jr. Day.
- The earning season kicks in full swing with more large-cap financial firms including Charles Schwab, Goldman Sachs, BNY Mellon, State Street, and PNC Financial reporting results.