Week 04 in Brief
- U.S. stocks closed higher on Friday, booking sharp gains after a roller-coaster week that saw declines across all major benchmarks.
- Technology stocks rebounded, with big tech names Microsoft, Amazon, Facebook-parent Meta, and Google-parent Alphabet providing support to the indexes.
How did the major indices perform?
- The Dow Jones Industrial Average gained 1.7%, or 565.69 points, to 34,725.47.
- The S&P 500 rose 2.4% to 4,431.85, ended notably higher after trading at an intraday low at 4,292.46, which had put the broad-market benchmark down more than 10% below its Jan. 3 closing peak, and would have met the commonly used criteria for a correction.
- The Nasdaq Composite closed up 417.79 points, or 3.1%, at 13,770.57
- The small-capitalization Russell 2000 index was trading 1.9% higher at 1,968.51, after touching an intraday low at 1,901.36, following it entering a bear market on Thursday for the first time in 2 years.
- For the week, the Dow booked a gain of 0.8%, the S&P 500 index climbed 1.3%, the Nasdaq Composite finished up 0.01% higher, but the Russell 2000 still finished down 1% for the week.
What drove the US market?
- Market Volatility: A volatile month has whipsawed investors, who have juggled worries over the pace of Federal Reserve interest rate increases, a mixed earnings reporting season, the continuing pandemic fallout and geopolitical worries surrounding a potential Russian invasion of Ukraine. Equity markets turned higher in another wild day of trading to end the week, expunging weekly declines in the process.
- Corporate Earnings: Positive news came from Apple whose shares were up nearly 7% after the iPhone maker sailed past Wall Street’s earnings expectations for the holiday quarter, and executives forecast continued revenue growth in the current quarter. Earnings topped $30 billion for the first time, and the results mark a high point in a thus-far mixed reporting season. Similarly, shares of Robinhood Markets which had been down double-digits in premarket trading swung higher, after the trading app closely associated with the “meme stocks” phenomenon produced a bigger-than-expected quarterly loss and reported a drop in securities-trading volumes.
- Economic Data: Reports showed U.S. consumer spending falling 0.6% in December, amid a wave of COVID-19 cases from the highly contagious omicron variant of coronavirus. Meanwhile, a measure of U.S. inflation preferred by the Federal Reserve climbed 5.8% in 2021 after another increase in December. Employment costs rose 1% in the fourth quarter. Separately, a reading of consumer sentiment slumped to a 10-year low as inflation concerns mount, underscoring the waning appetite for assets perceived as risky.
- Monetary Policy: Questions over the Fed’s plans to tackle inflation have hit interest-rate-sensitive technology and growth stocks particularly hard. This week’s Fed meeting produced no change in interest rates, but Chairman Jerome Powell didn’t rule out a potential rate increase at each meeting this year, and said the central bank needed to be “nimble.”
- Geopolitics: On the geopolitical front, Russia’s foreign minister Sergei Lavrov said Friday that Moscow doesn’t intend to start a war, but also “would not let our interests be rudely trampled on and ignored.” A day earlier saw U.S. President Joe Biden warned Ukraine’s president of a “distinct possibility” of Russian military action against its neighbour in February.
Which US stocks were in focus Friday?
- Visa Inc. topped $7 billion in quarterly revenue for the first time and shares climbed 10.6%, closing at $228.
- Western Digital Corp. shares slid 7.3% after the data-storage products company gave a weak outlook, amid a struggle to keep up with demand amid supply-chain problems. Shares closed at $49.90.
- Chevron Corp. stock fell 3.5%, closing at $130.61 after the energy giant reported a disappointing profit, even as revenue beat.
- Caterpillar Inc. shares fell more than 5% after the maker of industrial equipment and tractors reported earnings and revenue that beat forecasts.
- KLA Corp. shares turned higher to end up 1.3% Friday, even after a weak outlook from the chip-equipment maker that overshadowed an earnings beat for the quarter.
How did the European markets perform?
- European stocks fell sharply on Friday, wrapping up another volatile week for markets amid fears over the direction for central bank policies.
- The pan-European Stoxx 600 closed down by 1%, with mining stocks shedding 2.8% to lead losses as almost all sectors bar retail and travel slipped into the red.
- It marks the fourth consecutive week of losses for equity markets in Europe — and the first time this has happened since March 2020.
- Earnings were a key driver of individual share price movement on Friday. Dutch lighting company Signify jumped nearly 11% after a strong set of results, while Swedish clothing giant H&M gained 5% after beating profit expectations.
- At the bottom of the European blue-chip index, German chemicals company Henkel dropped more than 11% after its earnings report.
- Markets have whipsawed throughout the week as investors reacted to the Fed’s indication on Wednesday that it could soon raise interest rates for the first time in more than three years, and to rising geopolitical tensions between Russia and the West over Ukraine.
- Economic data releases included flash German, French and Spanish fourth-quarter GDP numbers, Italian inflation prints and a eurozone business climate survey.
- The German economy contracted by more than expected in the fourth quarter as renewed Covid-19 measures weighed on activity. GDP shrank 0.7% quarter-on-quarter. Europe’s largest economy grew 2.8% in 2021, Friday’s figures showed.
- The European Commission’s monthly economic sentiment index fell to 112.7 in January from a revised 113.8 in December, as industrial and services morale waned.
How did Asian markets perform?
- Asia-Pacific markets were mixed on Friday, following a volatile session on Wall Street.
- The Shanghai Composite fell 0.9%, while the Hang Seng Index was down 1% and Japan’s Nikkei 225 rose 2%.
- Australia’s ASX 200 advanced 2.19% to end the session at 6,988.1.
- MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.19% higher.
Commodities and Bonds
- Oil prices pulled back from seven-year highs this week, but remain elevated over fears that energy supplies in Europe from Russia could be disrupted.
- U.S. crude futures rose 0.68% during Asia trading hours to $87.20 per barrel, while Brent crude increased 0.64% to trade at $89.91 per barrel.
- Spot gold slid to a two-week low of $1,790.20 on Thursday as the U.S. dollar rallied following signs that the Fed will hike interest rates soon, Reuters reported. It has since recovered and was last trading at $1,796 in Asia
- The ICE U.S. dollar index, which tracks the greenback against a basket of its peers, last traded at 97.333, up from 97.225 earlier.
- Meanwhile, the Japanese yen traded at 115.66 per dollar, while the Australian dollar changed hands at $0.7014, down slightly from $0.7031 earlier.
The week will be packed with employment data, as well as earnings from some of the biggest e-commerce and tech giants in the world, including Amazon, Alphabet, and Meta Platforms.