Week 20 in Brief
U.S. stocks ended mostly lower on Friday, weighed down by technology and consumer discretionary shares, and concerns about Federal Reserve policy in the face of rising inflation pressures. The US dollar edged higher after stronger-than-expected U.S. manufacturing data.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average rose 123.69 points, or 0.4%, to close at 34,207.84. The Dow was still down 0.5% for the week.
- The S&P 500 edged down 3.26 points, or 0.1%, to 4,155.86 for a weekly loss of 0.4%.
- The Nasdaq Composite fell 64.75 points, or 0.5%, to close around 13,470.99. Still, the Nasdaq posted a weekly gain of 0.3%.
- The technology-heavy Nasdaq Composite snapped a 4-week losing streak, while the S&P 500 and Dow each posted a second straight week of losses. The blue-chip Dow has seen losses in four of the past five weeks.
What drove the market?
- Investors sifted through a light day of data to end another tumultuous week for stocks, with economic reports coming in mixed.
- Inflation Concerns: Rising U.S. inflationary risks have spooked markets, and minutes on Wednesday from the last Federal Reserve meeting suggested some policymakers were ready to talk about reducing stimulus by tapering bond purchases. Some investors and strategists are warming to the idea of pricing pressures in the aftermath of the Covid pandemic being temporary, which has been attributed to some of the rebound in areas of the market that would be harmed by a rapid surge in inflation.
- Economic Data: The IHS Market flash U.S. composite index rose to a record 68.1 in May from 63.5 in the prior month. The flash services index increased to a record 70.1 in May from 64.7 in April, while a reading of manufacturing rose to a record 61.5 from 60.5. However, housing data was soft. Existing-home sales fell 2.7% in April to a seasonally adjusted annual rate of 5.85 million annual rates, according to the National Association of Realtors. The readings come after the eurozone purchasing managers’ composite output index for the region climbed to a 39-month high at 56.9, with the services index at a 35-month high; the manufacturing PMI slipped to a two-month low at 62.8.
- Retail earnings: Leading U.S. retailers, including Walmart, Home Depot, Target, Lowe’s, and others reported first-quarter earnings that beat expectations this week, lifting the market. Retail appears to be alive and well, and so do consumers who have some purchasing power, thanks to stimulus checks.
- Crypto Sell-off: The broader market was rattled on Wednesday as the nascent crypto market sold off and as investors digested a reading of minutes from the Fed that raised the specter of the central bank at some point ending its accommodative asset purchases.
- Coronavirus: On the public health front, the number of global deaths caused by the coronavirus-borne illness COVID-19 is likely far higher than official numbers suggest, the World Health Organization said Friday. “Based on the excess mortality estimates for 2020, the 3.4 million deaths currently reported to WHO is likely a significant undercount, with true figures at least 2-3 times higher,” said the report.
Which stocks were in focus Friday?
- Major stock indexes initially appeared set to extend Thursday’s gains, but investors started selling technology and other growth stocks around midday, the same time bitcoin turned lower.
- Value stocks in the financial and energy sectors held on to their gains, as investors continued to favor shares of economically sensitive companies poised to benefit from the continuing economic rebound.
- Shares of Deere & Co. closed 1.3% higher after the construction, agriculture, and turf-care equipment maker reported fiscal second-quarter profit and revenue that came in well above expectations while warning that supply-chain pressures will increase through the rest of the year.
- VF Corp. shares fell 8.9% after the outdoor and activity-based apparel company reported fourth-quarter profit that missed expectations.
- Shares of Foot Locker Inc. gained 2% after the athletic shoe and apparel retailer reported big fiscal first-quarter profit and same-store sales beats while saying it will reposition its store fleet to focus growth on its iconic banners.
- BioNTech‘s chief executive has said that the COVID-19 vaccine it developed with the U.S. pharmaceutical group Pfizer is likely to be effective against the Indian variant of coronavirus. Shares of BioNTech slid 3.9%, while those for Pfizer declined 0.4%.
How did the European markets perform?
- European stocks rose on Friday, as Swiss luxury goods maker Richemont jumped after its results and accelerating business growth in the eurozone kept investors cautiously optimistic in the face of rising inflation worries.
- The pan-European STOXX 600 index rose 0.6%, capping the week with a small gain.
- Cartier-owner Richemont rose 5.0% to a record high as it proposed doubling its dividend back to pre-pandemic levels after strong demand for jewelry helped lift net profit and contain the fall in sales in its fiscal year 2020/21.
- In economic data, IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good guide to economic health, showed eurozone business growth accelerated at its fastest pace in over three years in May, helped by a strong resurgence in the bloc’s dominant service industry as economies reopened. The index climbed to 56.9 in May, its highest level since February 2018, from April’s final reading of 53.8.
- British retail sales surged 9.2% on the month in April, twice the average forecast in a Reuters poll of economists, and the UK Composite Purchasing Managers’ Index hit a record high at 62.0.
- European Central Bank President Christine Lagarde said it is still too early for the central bank to discuss winding down its 1.85 trillion-euro emergency bond purchase scheme, less than two weeks ahead of a crucial policy meeting.
- In Germany, luxury carmaker BMW rose 0.7% after it said it would have to set aside 1 billion euros, less than initially feared, for expected European antitrust fines for alleged collusion with rivals.
- Lufthansa AG fell 6.5% as the Thiele family, the second-largest shareholder in the German airline, sold more than half of its stake.
How did Asian markets perform?
Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 1.14%, while the Nikkei 225 led the Hang Seng lower. They fell 2.07% and 0.27% respectively.
Commodities and other assets
- Oil prices jumped 2% after three days of losses, with investors watching a storm that is forming over the western Gulf of Mexico. Brent crude futures rose to settle at $66.44 a barrel, while U.S. West Texas Intermediate settled at $63.58.
- Gold futures settled lower but booked a third straight weekly gain. Spot gold added 0.2% to $1,880.30 an ounce.
- The yield on the 10-year Treasury notes last rose 3/32 in price to yield 1.6233%, from 1.634% late on Thursday.
- The dollar hit its lowest level in four months on Friday and was set to notch a modest weekly drop as traders’ concerns about taper talk in Federal Reserve minutes faded, though a pullback in commodity prices and nervousness about virus outbreaks kept losses in check.
- The dollar index rose 0.27%, with the euro down 0.38% to $1.2179. The index, which measures the greenback against six major currencies, is down about 0.6% for the week so far.
- Against the Japanese yen, the dollar held at 108.74, for a weekly loss of roughly 0.5%. Sterling was last trading at $1.4144, down 0.02% on the day.
- Bitcoin slid after China doubled down on its efforts to prevent speculative and financial risks by cracking down on the mining and trading of cryptocurrencies. On Thursday, the U.S. Treasury Department also called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service and the Fed flagged the risks cryptocurrencies posed to financial stability.
- Bitcoin traded down 11.5% to 35,952.05.
- The cryptocurrency craze will continue capturing the market and could create buying opportunities for investors in stocks. Another packed week of earnings is expected.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.