Week 40 in Brief
- U.S. stocks closed lower Friday but gained for the week with technology stocks under pressure as bond yields rose after a weaker than expected jobs report.
- Analysts believe the jobs report is unlikely to prevent the Federal Reserve from scaling back its monetary policy stimulus.
How did the major indices perform?
- The Dow Jones Industrial Average fell 8.69 points, or less than 0.1%, to close at 34,746.25.
- The S&P 500 slipped 8.42 points, or 0.2%, to end at 4,391.34.
- The Nasdaq Composite lost 74.48 points, or 0.5%, to finish at 14,579.54.
- For the week, the Dow gained 1.2%, its largest percentage gain since June 25, according to Dow Jones Market Data. The S&P 500 rose 0.8% and the Nasdaq gained 0.1%.
What drove the US market?
- Volatility: Volatility has returned to markets in recent sessions, with both the S&P 500 and Nasdaq Composite recording back-to-back swings of at least 1% and other assets from bonds to commodities recording large moves. Throughout the week, investors remained focused on surging energy prices, concerns about inflation, and negotiations on the debt ceiling.
- Employment Data: The U.S. economy created far fewer jobs than had been expected in September. Nonfarm payrolls rose by just 194,000, compared to an estimate of 500,000. On the positive side, the unemployment rate fell to 4.8%, versus expectations for 5.1%, and August’s report was raised 366,000 from 235,000.
- Markets are questioning whether employment gains are sufficient to keep the Federal Reserve on track to scale back monetary policy stimulus. A rise in Treasury yields suggests that bond markets anticipate that the labor report won’t derail the Fed’s plans to ease its monetary policies before the end of the year
- Bond markets: The bond market appeared to be taking bearish cues from the labor-market report, with the benchmark 10-year Treasury note adding to yield highs not seen since early June and breaching a significant rate at 1.6%. Analysts believe the miss on jobs is tied to the supply of workers, creating a “confusing” dynamic for the market as it’s hard to know how permanent labor shortages may be as the economy continues its recovery from the pandemic. The Fed needs to complete tapering before it begins raising interest rates as rate hikes will be used as a tool to control inflation.
- Politics: Lawmakers struck a deal for a short-term extension to the debt limit in the Senate on Thursday, stoking a rally in the stock market after several days of uncertainty.
Which US stocks were in focus Friday?
- Throughout the week there was a huge move among groups of stocks within the broader market. On Friday, energy stocks continued their historic rally—the S&P 500’s energy group jumped 3.1% and soared past the broader benchmark—while tech continued to stumble. The S&P 500’s energy sector closed at its highest level since at least early 2020, according to Dow Jones Market Data.
- Camber Energy Inc., an oil-and-gas was the most actively traded on major U.S. exchanges ahead of Friday’s open. Shares of Camber closed almost 4% lower.
- Shares of ChemoCentryx Inc. soared 96% Friday after the company said that it had received approval from the Food and Drug Administration for its Anca-associated vasculitis therapy.
- Sam’s Club, the Walmart Inc. warehouse shopping club, announced its holiday plans on Friday, which include the launch of a direct-to-home wine delivery service. Walmart shares closed 0.3% higher.
- U.S.-listed AstraZeneca shares gained 0.4% on Friday after the company said an experimental asthma drug it is developing with Amgen has been given an orphan drug designation as a treatment for eosinophilic esophagitis, a rare inflammatory disease. Amgen shares slipped about 0.1%.
How did the European markets perform?
- European stocks ended a volatile session lower on Friday as investors digested a dire U.S. jobs report.
- The pan-European Stoxx 600 ended down 0.2%, with autos gaining 1.2% while tech slid 1.4% to lead losses as rising bond yields dimmed the high-growth sector’s appeal.
- Auto stocks rebounded from a selloff in September on concerns about supply chain bottlenecks and chip shortages hitting production.
- On the data front, Germany’s trade balance for August came in at positive 13 billion euros (positive $15 billion) on a seasonally adjusted basis, slightly below a forecast of 15.8 billion euros.
- Ireland relinquished its opposition to new global corporate tax rules on Thursday, agreeing to forego its 12.5% tax for large multinational corporations in a key development for efforts to install a worldwide minimum rate of “at least” 15%.
- In individual stocks, UK travel stocks, including British-Airways owner IAG, Whitbread, and Ryanair, gained between 0.4% and 1.6% with Britain set to scrap tough COVID-19 quarantine requirements for 47 destinations.
- German carmaker Daimler rose 2.6% as UBS upgraded its stock to “buy” from “neutral” and hiked its price target to 100 euros from 79 euros.
- Cnova NV, the e-commerce arm of French retailer Casino, fell 3.8% after saying it could no longer confirm its June financial forecast.
- French car parts manufacturer Faurecia gained 4.4% to lead the Stoxx 600 by mid-afternoon deals.
- At the bottom of the index, Tui plunged more than 15% as further flight and holiday cancellations continued to bite. The Anglo-German travel operator is planning a 1.1-billion-euro capital increase to service a spike in demand for holidays.
How did Asian markets perform?
- Most major benchmarks in Asia rose, as a private-sector survey showed China’s services sector activity returned to growth in September.
- Mainland China’s markets reopened after the Golden Week holiday, with the Shanghai Composite Index advancing 0.7%. Hong Kong’s Hang Seng Index added 0.6% while Japan’s Nikkei 225 climbed 1.3%.
- Still, valuations of Asian equities hit a 16-month low at the end of September, as concerns over an economic slowdown in China and growing expectations of monetary policy tightening by major central banks dragged down equity markets.
- The MSCI Asia-Pacific Index fell 2.3% last month and its forward 12-month P/E ratio was 14.6 at the end of September, the lowest since May 2020. So far this year, the MSCI Asia-Pacific index has lost 3.2%, compared with the MSCI World’s 10.3% gain.
Commodities and Bonds
- Oil prices jumped to a seven-year high this week, gaining about 4% as a global energy crunch boosted U.S. prices to their highest in almost seven years as big power users struggle to meet demand.
- Brent crude futures rose 44 cents, or 0.5%, to settle at $82.39 a barrel. Earlier in the week, the global benchmark hit a three-year high of $83.47.
- West Texas Intermediate (WTI) crude rose $1.05, or 1.3%, to end at $79.35. That was the highest close for the U.S. benchmark since Oct. 31, 2014.
- Gold futures ended lower, falling 0.1% to settle at $1,757.40 an ounce.
- The US dollar edged lower versus a basket of currencies on Friday following disappointing U.S. employment data.
- The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, fell 0.1% Friday but still gained 0.1% for the week.
- Bitcoin prices have been rallying again, hovering around $54,000 on Friday.
- Big banks and major airlines kick off Q4 earnings season: JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and U.S. Bancorp all report next week.
- Delta Air Lines also reports earnings on Wednesday.
- Investors will get more details on the U.S. labor market with the release of the JOLTS report on Tuesday.