Week 06 in Brief
- U.S. stocks closed lower Friday as concerns that Russia may soon invade Ukraine sent oil prices spiking and investors to dump risky assets like equities. Investors also weighed a sharp drop in consumer sentiment and a pickup in near-term inflation expectations.
- All three major stock benchmarks saw a weekly decline, halting a two-week advance. The tech-laden Nasdaq Composite suffered the most significant drop.
How did the major indices perform?
- The Dow Jones Industrial Average dropped 503.53 points, or 1.4%, to close at 34,738.06.
- The Nasdaq Composite fell 394.49 points, or 2.8%, to finish at 13,791.15.
- The S&P 500 Index fell 85.44 points, or 1.9%, to end at 4,418.64.
- Friday’s fall turned the S&P 500 lower for the week, down 1.8%. The Nasdaq saw a weekly drop of 2.2%, while the Dow fell 1% for the week.
What drove the US market?
- Geopolitics: The selloff in equities sped up in afternoon trading after news reports indicated the U.S. expects Russian President Vladimir Putin to invade Ukraine within days, and that Moscow has communicated those plans to the Russian military. Analysts continue to see the signs of Russian escalation, including new forces arriving at the Ukrainian border. The BBC reported that the U.K. has told British nationals to leave Ukraine immediately.
- Stock market volatility: Volatility in stock markets, which have experienced rapid swings this year as investors balance earnings reports against uncertain geopolitics and tightening monetary policy, was likely to continue.
- Economic Data: The University of Michigan’s preliminary February gauge of consumer sentiment fell to 61.7, from January’s level of 67.2, the lowest reading since October of 2011. Economists were expecting a reading of 67, according to economists surveyed by The Wall Street Journal. The University of Michigan survey also found expectations for inflation over the next year rose to 5% from January’s expectation of 4.9%, the highest level since July of 2008, while inflation expectations over five years held steady at 3.1%.
- The Labor Department reported Thursday morning that consumer prices jumped 7.5% in the 12 months ending January. Then, in an interview with Bloomberg News, St. Louis Fed President James Bullard talked about the possibility for the central bank to start with a 50-basis point hike in March — or even a rate hike in between scheduled meetings. That lifted the 2-year Treasury yield by 21 basis points — the largest single-day rise since June 5, 2009. The yield on the 10-year Treasury note rose above 2% Thursday but fell back below that level Friday.
- Analysts expect a significant bid for U.S. Treasuries, putting demand for yield in direct conflict with the Fed’s intentions should Russia invade Ukraine.
Which US stocks were in focus Friday?
- Information technology and consumer discretionary were the most beaten-down sectors of the S&P 500 Friday, with tech sinking 3% and consumer discretionary falling 2.8%, according to FactSet data. Energy stood out for its sharp gain of 2.8%.
- In stocks, Under Armour Inc. reported earnings and revenue that topped expectations. Shares of the athletic-apparel company fell 12.5%.
- Shares of Goodyear Tire & Rubber Co. plummeted 27.4% despite reporting a much stronger-than-expected rise in profits.
- Shares of Nvidia fell 7.3 per cent on Friday as the US semiconductor group’s failed takeover attempt of UK chipmaker Arm and rumblings over supply chain issues in the global semiconductor sector unnerved investors ahead of its fourth-quarter earnings report next week.
- Shares of “buy now, pay later” provider Affirm had plunged by more than 20 per cent by market close after the group issued below-forecast revenue expectations.
- The shares of top US defense contractors rose. Northrop Grumman gained 4.5 per cent, L3Harris Technologies added 3.7 per cent, and Lockheed Martin rose 2.8 per cent.
How did the European markets perform?
- European stocks fell on Friday after a hotter-than-expected U.S. inflation print and hawkish remarks from a Federal Reserve official prompted expectations of more aggressive interest rate hikes.
- The pan-European Stoxx 600 closed down 0.6%, with tech shares shedding 2.2% to lead the losses as most sectors and major bourses slipped into negative territory.
- Earnings reports continue to drive individual share price movement in Europe. British food and beverage ingredients company Tate & Lyle jumped 9.5% toward the top of the Stoxx 600 after posting strong quarterly results.
- Swedish engineering company Sweco climbed almost 9% after its fourth-quarter earnings.
- At the bottom of the European blue-chip index, Spanish utilities firm Naturgy Energy plunged 12% after announcing a plan to split the company into two.
- Meanwhile, German food delivery company Delivery Hero slumped another 12% Friday, as analysts at Barclays and JPMorgan cut their price targets on the stock following weak 2022 earnings guidance.
- On the data front, the British economy grew 7.5% in 2021, official figures revealed Friday, rebounding from its historic 9.4% plunge in 2020 when pandemic restrictions stifled activity.
- German inflation came in at an annual 4.9% year-on-year in January.
How did Asian markets perform?
- In Asia, the Shanghai Composite fell 0.7% Friday but booked a weekly gain of 3%. The Hang Seng Index HSI, -0.07% shed 0.1% in Hong Kong Friday and saw a weekly gain of 1.4%.
- MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.73% lower, while Japan’s Nikkei rose 0.42%.
Commodities and Bonds
- The yield on the 10-year Treasury note fell 7.7 basis points to 1.951%. Yields and debt prices move opposite each other.
- Oil prices ended up 3% at seven-year highs as escalating fears of an invasion of Ukraine by Russia, a top energy producer, added to concerns over tight global crude supplies. Brent crude, the oil benchmark, rose nearly 4 per cent in late-afternoon trading in New York to $94.96 a barrel, close to its highest point since 2014. Investors also flocked to the safety of US government debt, dragging the benchmark 10-year Treasury yield back down below 2 per cent to 1.92 per cent.
- Energy stocks moves higher alongside the price of oil, with Diamondback Energy rising nearly 4% and Devon Energy adding 3.6%. Exxon Mobil and ConocoPhillips gained 2.5% and 2.3%, respectively.
- U.S. gold futures settled up 0.3% at $1,842.10, on inflation fears and escalating Russia-Ukraine tensions.
- Spot gold prices rose $36.0077 or 1.97%, to $1,862.58 an ounce.
- The ICE U.S. dollar index rose 0.288%.
- The Japanese yen strengthened 0.60% versus the greenback at 115.31 per dollar, while sterling was last trading at $1.3547, down 0.06% on the day.
- The euro weakened 0.77%, following a warning from European Central Bank President Christine Lagarde that raising interest rates would only hurt the economy
- Investors the Senate Banking Committee meets to vote on Fed Chair Jerome Powell’s reappointment, along with the nominations for Fed Governor Lael Brainard for the position of Fed vice-chair, and several others.
- NVIDIA, Airbnb, NVIDIA, Cisco, Applied Materials, Shopify, Walmart, Roku, and more report earnings.