Week 45 in Brief
- Stocks closed higher on Wall Street on Friday, but the market still ended the week lower as inflation worries weighed on investors’ moods earlier in the week.
- Investors are betting that corporate profits will remain healthy despite supply-chain challenges and a surge in consumer demand in the aftermath of the COVID-19 pandemic.
How did the major indices perform?
- The Dow Jones Industrial Average rose 179.08 points, or 0.5%, to 36,100.31.
- The S&P 500 index added 33.58 points, or 0.7%, to end at 4,682.85. While it closed higher, the benchmark index still ended the week down 0.3%. It was the first weekly loss for the S&P 500 in six weeks.
- The Nasdaq Composite closed up 156.68 points, or 1%, to end at 15,860.96.
- The Dow lost 0.6% for the week and the Nasdaq lost 0.7%.
What drove the US market?
- Inflation Fears: The recent winning streak for stocks, which produced a series of record highs for the major indexes, came to an end as investors shifted focus from corporate earnings to rising inflation. Investors reviewed mostly solid corporate report cards over the last several weeks. A wide range of companies showed that they were able to successfully navigate both the summer surge of COVID-19 cases and lingering supply chain problems. But rising inflation has been a lingering concern, with companies warning that higher raw materials costs and supply chain disruptions could crimp their finances.
- Rising Consumer Prices: Prices have been rising for consumer goods and essential items, raising concerns that people could pull back on spending and hurt the economic recovery. Inflation concerns were stoked this week with discouraging reports on price increases for companies and consumers.
- Economic Data: On Tuesday, the Labor Department reported that inflation at the wholesale level surged to a record high in October. On Wednesday, the agency gave Wall Street a hotter-than-expected inflation report that showed consumer prices also surged, hitting their fastest overall pace since 1990.
- Employment Data: Outside inflation, investors are closely watching for data that could give a clearer picture of how various parts of the economy are recovering. The Labor Department on Friday released data that showed Americans quit their jobs at a record pace for the second straight month in September. The figures point to a historic level of turmoil in the job market as newly empowered workers quit jobs to take higher pay that is being dangled by businesses in need of help.
Which US stocks were in focus Friday?
- Technology stocks were among the biggest gainers on Friday: Chipmaker Micron Technology rose 3.7% and Apple 1.4%. Communications, industrial and health care companies also rose. Spectrum Brands, owner of Cutter bug spray and George Foreman grills, soared 10% after reporting strong quarterly earnings.
- Corporate Restructuring: Johnson & Johnson shares rose 1.2% after the company announced it would divide itself into two separate businesses. The company would split its Band-Aids and Listerine business from its medical device and prescription drug business. It’s the second big conglomerate to break itself up this month after General Electric announced it would also split itself into three separate companies.
- Banks and energy stocks lagged the market. Bank of America slipped 1.5%. The KBW Bank Index of the 24 largest banks closed down 0.2%.
- Lordstown Motors dropped nearly 18% after giving investors a discouraging production update, with delays stretching to the third quarter of 2022. Tesla fell 2.8% after CEO Elon Musk sold another chunk of his stock following a pledge on Twitter to liquidate 10% of his holdings in the electric car maker.
- Shares of Rivian Automotive Inc surged as much as 53% in its Nasdaq debut on Wednesday, giving the Amazon-backed electric vehicle maker a market valuation of more than $100 billion after the world’s biggest initial public offering this year. Rivian shares closed at $100.73, marking a nearly 30% jump from its offering price.
- Bond yields edged higher. The yield on the 10-year Treasury rose to 1.57% from 1.55% from late Wednesday. The bond market was closed on Thursday.
How did the European markets perform?
- European shares closed their sixth straight week of gains at a new high on Friday, as strong results from Cartier owner Richemont rounded off a robust earnings season.
- The pan-European STOXX 600 index rose 0.3% to a new peak of 486.75 points and added 0.7% for the week. It has finished at record highs in four of the five sessions this week, buoyed by dovish central bank messages, upbeat earnings reports, and signs of post-pandemic economic revival.
- Household goods led the gains Friday, up 1.9%, while oil and gas stocks were the worst performers, down 0.9%,
- Eurozone industrial production dipped by less than expected in September, data showed on Friday, falling 0.2% month-on-month for a 5.2% annual increase.
- A Reuters poll of economists on Thursday indicated that eurozone inflation expectations are also at risk of continuing to overshoot the European Central Bank’s 2% target in 2022. Eurozone inflation topped 4% last month but the ECB has broken from other major central banks by resisting calls for a tightening of monetary policy. But the ECB acknowledged on Friday that eurozone inflation may decline more slowly than earlier thought, partly due to supply chain bottlenecks.
- Corporate earnings have also been a key driver of individual share price action throughout the week. On Friday, Richemont shares climbed 10.8% after the Swiss luxury goods company posted strong earnings and revealed talks with online fashion retailer Farfetch in a bid to convert its loss-making Yoox-Net-a-Porter (YNAP) into a neutral industry platform.
- At the bottom of the European blue-chip index, AstraZeneca shares slumped 6.9% after the pharmaceutical company’s third-quarter earnings fell short of expectations.
- Europe has also become the epicenter of COVID-19 again, with Germany, France, and the Netherlands experiencing a surge in infections, and prompting some governments to consider re-imposing lockdowns, according to fresh data.
- Travel and leisure stocks were the worst weekly performers, down 3.7% as investors feared new restrictions.
How did Asian markets perform?
- Asian share prices advanced on Friday as a shock from a surprisingly strong U.S. inflation reading ebbed, with investors hopeful that the worst price hikes could be soon over.
- Japan’s Nikkei gained 1.1%, helped by brisk earnings. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.25% but mainland Chinese shares were softer, with CSI 300 index lipping 0.3%.
- Japanese conglomerate Toshiba confirmed plans to split the company into three separate businesses. Toshiba said the three companies would be focused on infrastructure, semiconductors, and devices.
Commodities and Bonds
- Bond yields ticked up, with the 10-year U.S. Treasuries yield rising 0.8 basis points to 1.565% on Friday after a market holiday on Thursday.
- Oil prices dipped as the market grappled with a stronger U.S. dollar along with concern over increasing U.S. inflation, and after OPEC cut its 2021 oil demand forecast due to high prices. Brent crude futures were down 0.65% at $82.33 per barrel while U.S. WTI futures dropped 0.58% to $81.12 per barrel.
- Gold prices stayed near Wednesday’s five-month highs as investors sought inflation hedges. They last stood at $1,859 per ounce, near Wednesday’s high of $1,868.5.
- The dollar index rose to a 16-month high of 95.264 as the euro slipped to $1.1436, its lowest since July last year.
- The yen softened to 114.30 per dollar, near its four-year low hit last month.
Investors will digest earnings reports from some of the largest retailers in the U.S, some of China’s biggest internet and e-commerce giants, including Alibaba and JD.com, and economic data from across the world.