Week 11 in Brief
U.S. stocks closed mostly lower Friday and booked losses for the week, as bank shares came under pressure after the Federal Reserve maintained it will not extend temporary relief from capital-requirement rules for banks, and news that the Department of Justice was investigating Dow component Visa Inc. Technology stocks recovered some ground.
How did the major indices perform?
Declines in financial stocks pulled the Dow Jones Industrial Average lower Friday, and all three major stock indexes ended the week in the red.
- On Friday, the Dow Jones Industrial Average fell 234.33 points, or 0.7%, to close at 32,627.97.
- The S&P 500 fell 2.36 points, less than 0.1%, to end the day at 3,913.10.
- The Nasdaq Composite gained 99.07 points, or 0.8%, to 13,215.24.
- On Thursday, stocks stumbled, with the Nasdaq Composite falling 3% as it suffered the brunt of selling pressure as bond yields rose. The Dow gave up gains to end lower, while the S&P 500 also slumped as a sharp selloff by oil futures dragged down energy shares.
- For the week, the Dow fell 0.5%, and the S&P 500 and the Nasdaq both slid 0.8%.
What drove the market?
- Federal Reserve Policy. Markets have been choppy this week, with investors weighing brightening economic prospects on one hand and worries that interest rates will climb sooner than anticipated on the other. Some investors are betting that inflation will rise as growth picks up and that it will remain elevated long enough to force the Federal Reserve to tighten monetary policy. Those concerns have led to a sharp selloff in the government bond market and spurred investors to exit tech and other high-growth stocks. This week, stocks slipped after the Fed said it would allow an exemption that allows banks to exclude Treasury’s and deposits with the central bank from calculation of a key bank capital measure known as the supplementary leverage ratio to expire on March 31.
- Rising Bond Yields. Bond yields remain the main driver for financial markets, analysts said. The yield on the 10-year Treasury note erased an earlier decline to rise fractionally to 1.725%, testing a 14-month high seen Thursday. The jump in bond yields over the past seven weeks has hit technology and other growth stocks whose high valuations rely on expectations for earnings far into the future. The equities slump on Thursday came after the Federal Reserve struck a dovish tone at its policy meeting on Wednesday but bond yields rose on expectations for economic recovery and inflation this year.
- Fiscal Stimulus: Fed Chairman Jerome Powell reiterated in a Wall Street Journal editorial on Friday that the central bank will provide aid to the economy ‘for as long as it takes.” With $1.9 trillion in stimulus money hitting the economy just as activity is set to accelerate anyway, the bond market might be trying to give policymakers a sense that there is a constraint on their actions.
- Geopolitics: The first high-level talks between the Biden administration and Chinese officials are ongoing in Alaska, with both sides trading criticism. Investors are nervous about a continuation of tensions between the two major economies.
Which stocks were in focus Friday?
- Bank stocks came under pressure after the Fed said Friday that it would allow a yearlong reprieve for the way big banks account for ultrasafe assets such as Treasurys to expire at the end of the month. JPMorgan Chase dropped $2.51, or 1.6%, to $155.14. Bank of America fell 41 cents, or 1.1%, to $38.53, and Citigroup fell 83 cents, or 1.1%, to $73.01.
- Nike shares lost 4%, closing at $137.49 after the athletic apparel company said late Thursday that sales grew slower than expected in the fourth quarter due to supply-chain disruptions, while earnings topped estimates.
- Visa Inc. shares dropped $13.76, or 6.2%, to $206.90 after The Wall Street Journal reported that the Justice Department is investigating whether the company is engaging in anticompetitive practices in the debit-card market.
- FedEx shares rose $16.07, or 6.1%, to $279.58, after the package giant said its quarterly profit nearly tripled.
How did the European markets perform?
- European stocks slid on Friday after France imposed fresh regional lockdowns to curb the spread of the coronavirus, amid concern over the pace of vaccination campaigns in some countries, while bank stocks led the sectoral decline.
- The pan-European STOXX 600 fell 0.8%, with France’s CAC 40 dropping 1.1% after the nation imposed a new four-week lockdown from Friday in 16 regions badly hit by the COVID-19 crisis.
- Still, European stocks gained 0.2% for the week as a rally in automakers, and signs that the U.S. Federal Reserve will maintain low-interest rates despite an expected surge in economic growth outweighed concerns about rising yields.
- Concerns over the pace of vaccination gained ground after Britain said it will have to slow its rollout next month due to a supply crunch caused by a delay in shipment.
- Automakers fell 1.6% after a strong run, ending with the sector’s best weekly performance since early February. The banking index tumbled 2.3%, posting the biggest declines among European sectors on Friday.
- German sportswear makers Adidas and Puma fell more than 2% each after Nike’s disappointing full-year revenue forecast.
How did Asian markets perform?
In Asia, most major benchmarks fell. The Shanghai Composite Index declined 1.7%, and Hong Kong’s Hang Seng retreated 1.4% while Japan’s Nikkei 225 also fell 1.4%.
Commodities and other assets
- Oil futures were higher after Thursday’s slump, with the U.S. benchmark jumping 2.4%, or $1.42, to settle at $61.42 a barrel.
- Gold futures edged higher, gaining 1% for the week, its second weekly rise, with the April contract up 0.5%, or $9.20, to settle at $1,741.70 an ounce.
- The USD advanced against major currencies on Friday, hitting a more than one-week high, after the Federal Reserve allowed a pandemic-driven break on capital requirements lapse, pushing U.S. Treasury yields off their lowest levels of the day.
- The USD has risen in recent weeks in line with higher Treasury yields. Since early January, the dollar index, a gauge of its value against six major currencies, has gained about 3.3%, with the benchmark U.S. 10-year note climbing about 80 basis points in the same timeframe.
- The USD index, a measure of the currency against a basket of the greenback’s six major rivals, was up 0.1% at 91.906.
- The euro dipped 0.1% to $1.1908, giving up early gains versus the dollar on concerns about further coronavirus lockdowns in Europe.
- The yen was roughly flat at 108.89 per dollar after the Bank of Japan widened its target band for the benchmark yield, a decision that was in line with market expectations.
- Meanwhile, bitcoin traded 2%higher at around $58,804, after briefly topping $60,000 again the previous day.
- Analysts expect more downside in the tech cohort as investors continue to rotate out of high-growth names to stocks that would benefit from reopening.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.