Week 38 in Brief
U.S. stocks were steady on Friday and gained for the week despite volatile trading that followed the Feds policy meeting this week, and concerns relating to China, COVID-19, and U.S. politics.
How did the major indices perform?
- The Dow Jones Industrial Average rose 33.18 points, or 0.1%, to 34,798.
- The S&P 500 edged up 6.5 points, or almost 0.2%, to 4,455.48.
- The Nasdaq Composite slipped 4.54 points, or less than 0.1%, to 15,047.70 declined 137.96 points, or 0.9%, finishing at 15,043.97.
- On Thursday, the Dow rose 507 points, or 1.48%, to 34765, its biggest two-day point and percentage gain since Mar. 8, 2021, according to Dow Jones data. The S&P 500 increased 53 points, or 1.21%, to 4449, and the Nasdaq Composite gained 155 points, or 1.04%, to 15052.
- For the week, the Dow rose 0.6% while the S&P 500 advanced 0.5% and the Nasdaq eked out a gain of less than 0.1%
What drove the market?
- Investors were this week concerned about a range of things including the pandemic-induced global supply-chain disruptions, the looming federal debt ceiling deadline in the U.S., and the debt crisis affecting Chinese property giant, China Evergrande Group.
- Federal Reserve Policy: The technology-laden Nasdaq Composite index was under pressure as Treasury yields started moving higher following the Fed’s policy statement on Wednesday. The Fed meeting revealed central bankers projected a possible rate hike in 2022, signaling they’re prepared to step in and contain the current inflationary market. The benchmark 10-year Treasury note rate at about 1.46% on Friday. The rise in yields affects the discount rate used for equity valuations and technology stocks are particularly sensitive to higher yields because of rapid earnings growth assumptions built into their valuations.
- Evergrande woes: Global markets have this week been concerned about the debt woes of a Chinese property company. As of Friday, investors remained nervous about the firm’s ability to meet its obligations debt obligations, as well as the “tremendous amount of leverage” in China’s real estate sector, though most countries have little exposure to Chinese real estate. As of Thursday, bondholders still hadn’t received any money from Evergrande which was due to make an $83.5 million interest payment on dollar bonds. The company has a 30-day grace period to make a payment, but barring that, Evergrande could trigger a default.
- Chinese-Bitcoin crackdown: A crackdown on bitcoin by China Friday added to the woes of some technology stocks, notably crypto-exchange Coinbase and retail trading platform Robinhood whose stocks fell. Last quarter, Robinhood made more than half of its transaction-related revenue from crypto. Bitcoin dropped 5% and ether lost about 7% in reaction.
- US Government shutdown: House Speaker Nancy Pelosi on Wednesday vowed to not let government funding expire next week, assuaging some worries about investors that politics could lead to a partial shutdown of the government and default in U.S. debt that could roil markets.
- Economic Data: U.S. new-home sales increased 1.5% to an annual rate of 740,000, the government said Friday. The figure equates to how many homes would be sold over a yearlong period if the same number were bought in each month based on the rate of sales in July. Compared with a year ago, sales were down 24% against estimates of an annual rate of 720,000 for August.
Which stocks were in focus Friday?
- Shares of Nike Inc. fell about 6.3% after the company reported quarterly sales that fell short of expectations and said wages and overhead expenses weighed on revenue.
- Shares of Costco Wholesale Corp. rose 3.3% as the retailer topped $60 billion in net sales in a single quarter for the first time, hit $5 billion in annual profit, and grew at its fastest pace in more than 20 years.
- Shares of Carnival Corp. rose about 3% after the cruise operator provided an update on its third quarter.
- Deutsche Bank analyst Michael Linenberg has launched a “short-term catalyst call buy” on Delta Air Lines Inc.‘s stock Friday, saying he believes the underperformance so far this year will flip to outperformance in the coming months. Delta shares climbed 2.2%.
How did the European markets perform?
- European stocks closed lower on Friday as investors reacted to central bank policy decisions and monitored developments surrounding China Evergrande Group.
- The pan-European Stoxx 600 ended down 0.9%, after a three-day run of gains, with all major bourses and most sectors in negative territory. Germany’s DAX fell 0.8% ahead of federal elections over the weekend to elect German Chancellor Angela Merkel’s successor while Britain’s FTSE 100 weakened.
- The Bank of England on Thursday kept monetary policy unchanged and downgraded economic growth projections for the third quarter of this year, following comments from the US Federal Reserve.
- In individual stocks, German software company Teamviewer was the best-performing stock on the Stoxx 600 Friday, climbing almost 5%. Meanwhile, AstraZeneca gained on news that the pharmaceutical giant had invested in the start-up behind Imperial College London’s experimental Covid-19 vaccine. The deal will see both companies working together to develop and sell drugs based on the latter’s self-amplifying RNA technology platform.
- In the coming months, both the U.K. and the U.S. will relax pandemic-era travel rules for fully vaccinated people from several countries, including France.
- British food delivery firm Deliveroo shed around 5% after losing a deal with Shell’s gas station convenience stores to rival Uber Eats.
How did Asian markets perform?
- Asian stocks closed mixed Friday. Asia’s MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.5% to take its weekly losses to 1.2%, its third drop in a row. Hong Kong’s Hang Seng Index dropped 1.3% and logged a weekly decline of 2.9%, while China’s CSI 300 index finished virtually unchanged and logged a 0.1% weekly fall. The Nikkei 225 index jumped 2% on the session, helping to pare a weekly decline to 0.8%.
- Shares of China Evergrande Group in Hong Kong fell nearly 12%, with reports that Chinese authorities have told local officials to prepare for the potential demise of Evergrande. Global investors are worried an Evergrande default poses systemic risks to China’s financial system.
Commodities and Bonds
- Bond yields in the U.S. and the eurozone extended their rise after Thursday’s jump as expectations grow that the Fed will begin tapering its asset purchases by year-end and other countries are not far behind.
- The yield on the 10-year Treasury note rose about 5 basis points to 1.459% Friday. For the week, the yield increased by about 9 basis points.
- Oil prices rose for a fourth straight day due to global supply concerns following powerful storms in the United States. Brent crude rose 0.1% to $77.33 a barrel and U.S. oil gained 0.9% to $73.98 a barrel.
- Gold futures ended higher, rising 0.1% to settle at $1,751.70 an ounce, but were relatively flat for the week. It fell over 1% the day before as higher yields hurt the non-interest-bearing asset.
- The dollar index on Friday rose 0.1% after dropping sharply overnight against a basket of its peers.
- The euro dipped to $1.1721 while the yen was flat versus the dollar.
- The sterling was down 0.3% against the dollar on Friday, trading at around $1.3675.
- Market volatility will continue as investors remain concerned about a potential US government shutdown.
- Investors will digest economic data from across the world, and earnings from firms including CarMax, Micron Technology, and IHS Markit.