Week 7 in Brief
U.S. stocks closed mixed Friday, with weekly gains for the Dow and losses for both the S&P 500 index and the Nasdaq Composite. A combination of rising interest rates, weaknesses in the labor market, and profit-taking in some of the market’s largest technology companies appeared to dampen optimism.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average was up 0.98 points to end at 31,494.32 and has edged up for three consecutive weeks. The S&P 500 fell 7.26 points, or 0.2%, to 3,906.71. The broad-based benchmark fell for its fourth straight session, marking its longest losing streak in two months. The Nasdaq Composite picked up 9.11 points, or 0.1%, to 13,874.46, also falling for its fourth consecutive session.
- For the week, the Dow rose 0.1%, the S&P 500 fell 0.7% and the Nasdaq Composite slid 1.6%.
What drove the market?
- Unemployment report: Weakness in the labor market and worries about rising bond yields have put pressure on the broader equities market, especially after a surprise increase in the number of Americans applying for unemployment benefits.
- Coronavirus stimulus: Market participants remained hopeful of further government spending for economic recovery. Negotiations are ongoing in Congress on President Biden’s $1.9 trillion aid package.
- Vaccine News: There are growing expectations that vaccine rollout will bolster economic recovery in the second half of 2021. The U.S. averaged 72,831 new cases a day in the past week, down 44% from the average two weeks ago, while so far 59.1 million vaccine doses have been given, to about 17.8% of the population.
- Rising Treasury Yields: The optimism around a robust economic rebound has underpinned a rise in U.S. Treasury yields as investors rotate out of government debt and increase their position in assets that might perform well in a so-called reflationary environment. The 10-year Treasury note was yielding 1.344% on Friday, compared against 1.199% at the end of last week.
- The Federal Reserve has vowed to keep benchmark interest rates at or near zero for the foreseeable future as the economy contends with the impact of the epidemic but some investors fear rapidly rising rates could impinge upon the central bank’s efforts to support growth.
- In other economic reports, a flash reading of purchasing managers index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 in the prior month, marking the strongest reading in almost six years and suggesting that parts of the economic recovery are starting to pick up speed as COVID-19 cases retreat. U.S. existing home sales rose 0.6% to 6.69 million rates in January.
Which stocks were in focus Friday?
- Cyclical stocks outperformed the broader market with the materials, energy, and industrials sectors up 1.8%, 1.7%, and 1.6%, respectively. Utilities and consumer staples stocks were among the biggest laggards.
- Small-cap stocks, which also tend to track the ups and downs of the broader economy, clinched solid gains Friday at the expense of some of the market’s largest members. The Russell 2000 added 2% while Facebook, Amazon, Netflix, and Microsoft all fell. Apple ended the week down 4%.
- Shares of Tesla shed 0.77% to $781.30 Friday, on what proved to be an all-around positive trading session for the stock market. This was the stock’s second consecutive day of losses. Tesla Inc. closed $119.10 below its 52-week high ($900.40), which the company achieved on January 25th.
- Shares of Deere & Co. jumped 10.5% Friday, after the construction, agriculture, and turf care equipment maker reported big profit and revenue beats for the fiscal first quarter, citing “improving conditions“in the farm and construction sectors, and provided an upbeat full-year outlook.
How did the European markets perform?
- European shares rose on Friday, booking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
- The pan-European Stoxx 600 ended the session up 0.5%, with basic resources shares surging 2.8% to lead the gains, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
- The eurozone flash composite PMI, combining manufacturing and services activity, climbed to 48.1 in February from 47.8 in January. However, any reading below 50 indicates a contraction in business activity. Germany’s composite PMI reading came in at 51.3, up from 50.8 in January, with anything above 50 representing an expansion. A surge in manufacturing activity offset a contraction in services. French activity weakened to 45.2, down from 47.7 in January, as lockdown measures hit the country’s dominant services sector.
- London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years.
- Corporate earnings remain a key driver of individual share price action, with Danone, Hermes, Renault, and Allianz all reporting their results.
- French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
- In vaccine news, Germany’s regulator on Thursday declared that the AstraZeneca-University of Oxford vaccine was “highly effective” and said negative side-effects are short-lived.
How did Asian markets perform?
- Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.57% and the Hang Seng rose 0.20%. The Nikkei 225 lost 0.72%.
Commodities and other assets
- Oil futures fell even as energy disruptions continued throughout the country, with the U.S. benchmark falling $1.28, or 2.1%, to settle at $59.24 a barrel on the New York Mercantile Exchange.
- Gold futures rose $2.40, or 0.1%, to settle at $1,777.40 an ounce, with prices for the most-active contract down 2.5% for the week.
- The yield on the 10-year Treasury note gained 5.8 basis point to around 1.345% on Friday, booking its sharpest weekly rise since early January.
- The dollar lost ground on Friday as market participants favored currencies associated with risk-on sentiment over the safe-haven greenback.
- For the week, the dollar slid about 0.2% against a basket of world currencies, the euro was essentially flat, and the yen lost more than 0.5%. But the British pound advanced more than 1.1% against the dollar, its best week since mid-December.
- Bitcoin continues to soar to record highs and finally going mainstream. The world’s largest cryptocurrency was last up 6.6% at $54,961.67, hitting $1 trillion in market capitalization. Its smaller rival, Ethereum, was last up 0.7% at $1,953.28.
- Sterling, which often benefits from increased risk appetite, rose to an almost three-year high amid Britain’s aggressive vaccination program. It had last gained 0.27% to $1.40.
- The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.21% to $1.2116.
- The yen gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.
- Stocks that do well when the economy improves could continue to move higher at the expense of tech and grow in the week ahead if market focus remains on better data and stimulus.
- Federal Reserve Chairman Jerome Powell speaks Tuesday and Wednesday before the Senate Finance Committee and House Financial Services Committee
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.