Week 41 in brief
Stocks on Wall Street fell on Friday, giving off morning trading gains following a consumer survey from the University of Michigan showing inflation expectations were increasing. This capped off what was a very volatile trading week, which ended in a historic turnaround rally following the inflation data. The biggest individual stock losers for the day were Tesla and Lucid Motors, whose stocks declined by 7.55% and 8.61%, respectively. This weighed in on the Nasdaq composite which ended over 3% lower.
US bonds also shot higher for the day, with the rate on the 10-year U.S. Treasury topping 4% for the second time in two days.
How did the major indices perform?
- The Dow Jones Industrial Average fell 403.89 points, or 1.3%, to close at 29,634.83, after rising 390 points at its session high.
- The S&P 500 shed 86.84 points, or 2.4%, to finish at 3,583.07.
- The Nasdaq Composite tumbled 327.76 points, or 3.1%, to end at 10,321.39, its lowest closing value since July 2, 2020.
For the week:
- The Dow rose 1.2%,
- The S&P 500 fell 1.6% and
- The Nasdaq dropped 3.1%.
What drove the U.S. market?
- Stocks on Wall Street were weighed down by inflation concerns as the University of Michigan’s consumer sentiment survey showed expectations for inflation over the next year rose to 5.1% from September’s one-year low of 4.7%, while expectations for inflation over the next 5 years ticked up to 2.9% from 2.7% last month.
- This was also following Thursday’s consumer-price-index report, which showed inflation rose in September more than anticipated. Thursday’s CPI report was followed by a slump in the stock market in early trading followed by a huge bounce in later trading on the same day, This bounce has been credited to technical and positioning considerations after a steep selloff that had seen the S&P 500 index tumble for six straight sessions to end Wednesday at its lowest since November 2020.
- Thursday marked the fifth largest intraday reversal from a low in the history of the S&P 500, and it was the fourth largest for the Nasdaq, according to SentimenTrader.
- Wells Fargo shares rose 1.9% after the bank posted stronger-than-expected revenue for the third quarter, offsetting a profit miss.
- Shares of Morgan Stanley dropped 5.1% after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.
- Citigroup shares edged up 0.65% after the bank topped Wall Street forecasts on earnings and revenue.
- UnitedHealth Group Inc. shares increased 0.6% after the Dow component and health insurer reported third-quarter profit and revenue that rose above expectations and lifted its full-year outlook for a third straight quarter.
How did the European markets perform?
- Stocks in Europe closed higher on Friday, having lost some gains from earlier trading following the U.K. government U-turning on some of its controversial fiscal policies and the country’s finance minister, Kwasi Kwarteng fired. On Friday afternoon, Prime Minister Liz Truss gave a press conference where she announced a further reversal of tax-cutting plans laid out in a mini-budget on Sept. 23.
- The pan-European Stoxx 600 was up 0.7% by market close, with utilities adding 2% to lead gains as most sectors and major bourses advanced. Oil and gas and tech just dipped into red at the end of the day.
- The Bank of England on Friday also ended its temporary purchases of long-dated U.K. government bonds, a support mechanism launched two weeks ago to stabilize the gilt market and rescue pension funds in the wake of the government’s fiscal announcements. At its final reverse auction during its two-week emergency bond-buying program, the Bank of England bought £1.3207 billion ($1.48 billion) worth of long-dated government bonds.
- In individual stock performance, Virgin Money shares gained 5.4% in early trade to lead the Stoxx 600, while Swiss software company Temenos plunged more than 19% after issuing a profit warning.
How did Asian markets perform?
- The Asia Dow, which includes blue-chip companies in the region, jumped 2.18% to 2,821.40 on Friday. On a weekly basis, it fell by 3.10%.
- Tokyo’s Nikkei 225 stock exchange surged 3.25% to 27,090.76. The index was slightly down by 0.09% this week.
- The Hang Seng, the benchmark for blue-chip stocks trading on the Hong Kong stock exchange, went up by 1.21%, to 16,587.69, while it had a weekly rise of 6.50% on Friday.
- China’s Shanghai stock exchange was also on a high note, rising 1.84% from the previous close to 3,071 points on Friday, while it was up 1.57% on a weekly basis.
- In line with the market forecast, China’s annual consumer inflation rate rose to 2.8% in September, official figures revealed on Friday. This was the largest year-on-year rise in consumer prices since April 2020.
- Indian Sensex benchmark increased 1.20%, to 57,919.97 and Singapore index benchmark lost 0.03%, to 3,039.6. While Singapore was down 3.38% this week, Sensex fell 0.47%.
Bonds and Commodities
- The yield on the 10-year U.S. Treasury bond topped 4% for the second time in two days as traders weighed inflation data and a slump in UK gilts after the government pivoted yet again on parts of its budget.
- Yields on the 10-year gained seven basis points to trade at 4.025%. A day earlier, the yield briefly rose above the 4% level after a key consumer inflation report was hotter than expected. Bond yields move inverse to price and one basis point is equivalent to 0.01%.
- Oil prices fell Friday, pushing the commodity to its worst week since Aug. 5 as worries about a global recession hitting demand outweighed production cuts from OPEC+.
- West Texas Intermediate crude settled down 3.93% at $85.61 per barrel on Friday. That brought it down 7.59% for the week, its first negative week in three. Year to date, West Texas Intermediate is up nearly 14%.
- Brent crude also slumped, falling 3.11% to $91.63 per barrel Friday, notching a 6.42% loss for the week. It’s Brent’s first negative week since Sept. 2. The commodity is up nearly 18% year to date.
- The dollar continued its march higher against the yen, hitting a new 32-year peak of 148.86. It was last up 1% at 148.67 yen.
- The dollar index rose 0.6% to 113.25.
- The pound fell for a second straight day against the dollar on Friday, last trading at $1.1166, down 1.5%.
- The euro also rose against the sterling to 86.98 pence, up 0.9%.
Corporate earnings season enters one of its busiest weeks starting on Monday, with a more big bank and financial earnings due from Bank of America, Charles Schwab, Goldman Sachs, and Barclays. Other companies due to report results will include Johnson & Johnson, Lockheed Martin, IBM, Netflix, United Airlines, American Airlines, Procter & Gamble, and Tesla.
The latest updates on the U.S. housing market, including September housing starts, building permits, and existing home sales will become available. Investors can also expect a key GDP release from China and vital inflation reading from the U.K.