Week 51 in Brief
How did the major indices perform?
U.S. stocks closed slightly lower on Friday despite closing at record highs on Thursday as Congress raced to avert a government shutdown and another relief package. Friday marked another “quadruple witching day” — the date when stock-index futures, stock-index options, stock options, and single-stock futures expire simultaneously, a potential source of volatility.
- On Friday, the Dow Jones Industrial Average fell 124.32 points, or 0.4%, to finish at 30,179.05, after touching an intraday record at the open at 30,342.59; the S&P 500 slumped 13.07 points, or 0.4%, ending at 3,709.41. It had hit an intraday record high at 3,726.70; and the Nasdaq Composite gave up 9.11 points, or 0.1%, to close at 12,755.64, after notching an intraday all-time high at 12,809.60.
- The Dow gained 0.4% for the week. while the S&P 500 advanced 1.3% for its fourth positive week in five. The tech-heavy Nasdaq outperformed with a 3.1% gain for the week.
- Stocks rose modestly Thursday, with gains carrying the Dow, S&P 500, Nasdaq Composite, and the small-cap Russell 2000 to record finishes.
What drove the markets?
- Analysts pointed to outsized trading volumes Friday, likely tied to the expiration of an array of options contracts on the quadruple witching day, but also the upbeat narrative for stocks remaining pretty much unchanged, with another COVID-19 aid package expected soon.
- Congress on Friday approved a two-day spending bill to avert a weekend lapse in funding while negotiators struggled to clear away the final stubborn hurdles to a $900 billion stimulus compromise.
- Stimulus talks seem to be making progress and until investors hear that talks have completely broken down, the market will likely continue to hold up reasonably well.
- The showdown over Congressional spending comes amid a worsening economic backdrop, as illustrated by a Thursday rise in first-time jobless claims data, which could eventually push Congress to complete a deal.
- Meanwhile, a second COVID-19 vaccine is expected to soon be rolled out, after an independent advisory committee voted on Thursday that the benefits of Moderna Inc. COVID-19 vaccine candidate outweighs the risks, a recommendation that sets the stage for a likely Food and Drug Administration authorization.
- Moderna shares lost 2.6% Friday. Inoculations using the vaccine developed by Pfizer Inc. and BioNTech began earlier this week.
Economic Data & Policy
- The current-account deficit, a measure of the nation’s debt to other countries, rose 10.6% in the third quarter largely because of an increase in the trade gap on goods.
- A reading on leading economic indicators from the Conference Board for November rose 0.6%.
Stocks in Focus
- Nike stock rose late Friday after the company’s reported Q2 earnings unexpectedly rose as the pandemic delivered another huge boost to its digital sales.
- Tesla shares closed 6% higher on a heavy volume of more than 177 million shares as the stock joined the S&P 500 after Friday’s close. Tesla is being added to the benchmark in one fell swoop, marking the largest rebalancing of the S&P 500 in history. Shares closed at $ 695.00.
- Microsoft shares dropped 0.4% Friday after the company confirmed it was breached as part of the massive hack that used a backdoor in SolarWinds software. Shares closed at $218.59.
- Dow shares rose 3.4% after J.P. Morgan turned bullish on the materials science company, as business conditions in the middle of December look “much better” than they did two weeks ago. Shares closed at $55.66.
- Shares FedEx Corp fell 5.7%, despite the company reporting quarterly sales that topped $20 billion for the first time and earnings that more than doubled. Shares closed at $275.57.
- Dating App Bumble filed confidential paperwork for an initial public offering, according to Bloomberg News, which said it potentially could seek a valuation of up to $8 billion and debut around Valentine’s Day.
How did the European markets perform?
- European shares fell on Friday as doubts over a post-Brexit trade deal and a stimulus package in the United States capped gains at the end of a solid week.
- The pan-European STOXX 600 index broke a four-day rally to end 0.4% lower, reversing gains that followed a surprise rise in German business morale in December.
- The CAC 40 is down 0.39% while London’s FTSE 100 is off 0.33% and Germany’s DAX is lower by 0.27%.
- Britain’s exporter-heavy index lost 0.3%, despite a weaker pound and uncertainty around the Brexit deadline.
- Travel & leisure stocks slipped on Friday, with British Airways-owner IAG down 2.1% after a media report that it had agreed to buy Spanish carrier Air Europa for 500 million euros ($612.55 million).
How did Asian markets perform?
- Asian markets finished lower on Friday with shares in Hong Kong leading the region. The Hang Seng is down 0.67% while China’s Shanghai Composite is off 0.29% and Japan’s Nikkei 225 is lower by 0.16%.
Commodities and other assets
- Oil futures closed higher, with the U.S. benchmark up 1.5% to settle at $49.10 a barrel and on track for a seventh straight weekly rise; oil booked more than 5% weekly gain.
- Gold futures for February delivery settled almost 0.1% lower Friday at $1,888.90 an ounce but ended the week about 2.5% higher.
- The 10-year Treasury note yield rose 1.8 basis points to 0.947% to end the week higher. Yields and prices move in opposite directions.
- USD rose on Friday from 2-1/2-year lows as doubts about an agreement on U.S. COVID-19 aid and Brexit trade negotiations deflated investor confidence.
- The dollar index gained 0.21% to 90.0190, after dropping to 89.822 on Thursday.
- GBP, down 0.60% to $1.3505, pulled back from a 2-1/2-year high against USD and a 2-1/2-week high against the euro as the Brexit talks continued.
- EUR was down 0.25% at $1.2240 against the dollar and up 0.33% against the pound at 0.9060.
- Meanwhile, investors remain focused on Bitcoin, which last traded around $22,732.78, down 0.24% after rocketing to its highest-ever level on Thursday. The 2020 rally has also been driven by increasing expectations it will become a mainstream payment method, with PayPal opening its network to cryptocurrencies.
- Traders will be watching the shakeout from the massive S&P 500 rebalancing that came with Tesla’s entry to the index. Tesla first trades as a part of the S&P on Monday morning.
- Investors are also focusing on what the new year could bring for the market and economy, as 2020 winds down with stocks near record highs.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.