Week 23 in Brief
U.S. stocks finished higher Friday, with the S&P 500 pushing to another record close as bond yields fell, despite persistent concerns over whether current inflation spikes could linger and cause the U.S. Federal Reserve to tighten its dovish policy sooner than expected.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average rose 13.36 points, or less than 0.1%, to close at 34,479.60.
- The S&P 500 added 8.26 points, or 0.2%, to close at a record 4,247.44, its second in a row.
- The Nasdaq Composite climbed 49.09 points, or 0.4%, to end at 14,069.42.
- On Thursday, stocks ended higher, with the S&P 500 gaining 0.5% to close at a record at the time, taking out its previous all-time high finish set on May 7. The Dow Jones Industrial Average eked out a gain of 19.10 points, or 0.1%, while the Nasdaq Composite advanced 0.8%.
- The Nasdaq ended the week with a 1.9% gain, while the S&P 500 advanced 0.4% The Dow retreated 0.8% this week, snapping a 2-week win streak.
What drove the market?
- Federal Reserve Meeting: Investors have turned their attention to the Fed’s statement after next week’s two-day monetary policy meeting, which will be parsed for clues regarding the central bank’s timetable for raising key interest rates.
- The big question is whether policymakers will come forward with details about their thinking around an eventual tapering of the Fed’s bond-buying program, offering investors “more of a peek behind the curtain. Several Fed officials have said the Fed should begin contemplating when it would be appropriate to discuss easing up on purchases.
- Economic Data: Preliminary estimate of the index of consumer sentiment released Friday by the University of Michigan rose to 86.4 in June versus 82.9 in May. The figure came in above expectations from economists polled by The Wall Street Journal, who forecast the indicator to increase to 84.4. The survey found inflation remained a top worry for consumers, though expectations for the U.S. inflation rate eased somewhat. In the next year, consumers expect prices to increase 4% compared with a 4.6% in May. For the next five years, inflation is expected to rise by 2.8%, down from 3% the prior month. The small rise in the consumer-confidence index coupled with the slight drop in expected inflation suggests households might not be as overly worried about surging inflation.
- Treasury’s rally: Traders have been attempting to make sense of a Thursday rally in Treasury’s that dragged down yields despite data showing the rate of U.S. consumer inflation over the past year escalated to a 13-year high of 5% from 4.2% in the prior month. That put it at the highest level since 2008 when the cost of oil hit a record $150 a barrel. Before that, the last time inflation was as high was in 1991. The fall in Treasury yields provided a lift for equities, particularly shares of tech-related companies and others sensitive to interest rates.
- Infrastructure Spending: In Washington, a bipartisan group of senators — five Democrats and five Republicans — are pushing an infrastructure plan with $579 billion in new spending as negotiators try to strike a nearly $1 trillion deal on President Joe Biden’s top priority. Talks between Biden and Senate Republicans broke down earlier this week.
Which stocks were in focus Friday?
- Much of the trading volume this week was attributable to the ongoing social media-driven “meme stock” phenomenon, in which retail investors swarm around heavily shorted stocks.
- Among the 11 major sectors in the S&P 500, rebounding financial stocks and tech-led the gainers, while healthcare suffered the biggest percentage drop.
- Shares of AMC Entertainment Holdings Inc. jumping 15.4%, after falling 22.2% over the past two sessions. The stock and other meme stocks took a hit Thursday after GameStop disclosed that the SEC was looking into the “trading activity” around its stock and those of other companies. GameStop’s stock rose 5.9% after tumbling 27.2% on Thursday.
- Biogen shares ended down 4.4%, as the Food and Drug Administration faces mounting criticism over its “accelerated approval” of Biogen Inc’s Alzheimer’s drug Aduhelm without strong evidence of its ability to combat the disease. The broader healthcare sector shed 0.7%.
- Shares of Chewy Inc. fell 5.8% after the pet-products retailer surprised Wall Street late Thursday with a quarterly profit, but said it was facing labor shortages and supply problems that had led it to run out of some items.
- McDonald’s Corp. said hackers stole some data from its systems in markets including the U.S., South Korea, and Taiwan, the latest case of cybercriminals attacking a high-profile global company. Shares rose 1%.
How did the European markets perform?
- European stocks scaled a record high on Friday, buoyed by hopes that major central banks will remain accommodative despite signs of rising inflation, while a rally in miners boosted UK shares (Reuters).
- The pan-European STOXX 600 index rose 0.7% in its sixth straight session of gains and ended the week 1.1% higher, its best weekly performance since early May.
- Reopening optimism has pushed Europe’s stock markets to record highs, with investors rotating into cyclical sectors such as commodities, industrials, and banks that tend to benefit from an economic recovery.
- Miners jumped 1.9%, lifting UK’s commodity-heavy FTSE 100 by 0.7% after data showed Britain’s economic output in April was a record 27.6% larger than a year before.
- Travel and leisure stocks bounced from the previous session’s drop. Spanish hotel chain Melia rose 2.0% after its chief executive forecast a return to profitability in June after 15 months in the red.
- Eurozone government bond yields fell after the decision, weighing on banking stocks. An index of the bloc’s lenders dropped 0.2%.
- French reinsurer Scor jumped 8.4% after top shareholder Covea agreed to an orderly exit from the company following a settlement over a frustrated takeover attempt and ensuing legal disputes.
- The European Central Bank raised its growth and inflation projections for the eurozone on Thursday but pledged a steady flow of stimulus over the summer, easing investor concerns about early dialing back of the bank’s support.
How did Asian markets perform?
- Asian shares were mostly higher on Friday building on gains in the US and Europe. Shanghai fell, Tokyo was flat, while shares rose in Hong Kong, Seoul, and Sydney.
- Tokyo’s Nikkei 225 index was unchanged, at 28,959.54, while the Hang Seng in Hong Kong rose 0.4% to 28,851.00. The Kospi in Seoul gained 0.7% to 3,246.20, while the Shanghai Composite index slipped 0.3% to 3,601.82. India’s Sensex gained 0.5%.
- China-U.S. tensions are among many factors weighing on sentiment in Asia.
Commodities and other assets
- Oil futures ended at a more than 2-year high, with the U.S. benchmark up 62 cents, or 0.9%, at $70.91 a barrel. International Benchmark Brent crude lost 26 cents to $72.26 per barrel. It gained 33 cents to $70.29 per barrel on Thursday.
- Gold futures finished lower, falling 0.9%, to settle at $1,879.60 an ounce.
- Benchmark U.S. Treasury yields posted their biggest weekly drop in nearly a year, weighing on the interest-sensitive financial sector in recent sessions. The yield on the 10-year Treasury note slipped to 1.466%. Yields and bond prices move in opposite directions.
- The US Dollar stabilized on Friday against major currencies. The dollar index, showing its strongest weekly gain since early May, was last up 0.57% on the day at 90.5810.
- The euro was down 0.63% at $1.2099, on track for its biggest weekly decline since the end of April.
- Meanwhile, investors left riskier currencies such as the Australian dollar, which was down 0.72% at $0.7697 after hitting its lowest level for the week while the New Zealand dollar was off 1.01% at $0.7123 after touching its lowest level since May 4.
- Bitcoin was on track for a 3% weekly gain and last up 0.3% at $36,817.94 on the day. Ether was last down 3% and set for an 11.7% weekly drop. Both are still trading significantly below their earlier peaks.
- Wall Street will turn its attention to a range of economic data and minutes from the Federal Reserve’s meeting on Wednesday.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.