Company / Analytics

Week 8 in Brief

Stocks closed lower Friday, with the major indices – the Dow, Nasdaq, and S&P 500 – posting weekly losses as fears of higher interest rates and inflation deepened.

A sudden acceleration of the Treasury market selloff on Thursday sent yields, which move in the opposite direction of bond prices, up sharply, triggering a stock market swoon that slammed highflying tech-related stocks particularly hard.

How did the major indices perform?

• On Friday, the Dow Jones Industrial Average tumbled 469.64 points, or 1.5%, to finish at 30,932.37, after touching a session low at 30,911.37. The S&P 500 lost 18.19 points, 0.5%, to close at 3,811.15, after briefly falling below its 50-day moving average at 3,808.60. The Nasdaq Composite added 72.91 points, or 0.6%, to 13,192.34, after touching a Friday nadir of 13,024 and closing below its 50-day moving average on Thursday.
• For the week, the Dow lost 1.8%, the S&P 500 fell 2.5%, and the Nasdaq Composite was off 4.9%. That marked the Nasdaq’s biggest slide since the week ended Oct. 30, according to FactSet data. February was still a winning month, for equities, with the Dow up 3.2%, S&P 500 rising 2.6%, and the Nasdaq holding on to a gain of 0.9%.

What drove the market?

• Rising Treasury Yields: A sudden acceleration of the Treasury market selloff on Thursday sent yields, which move in the opposite direction of bond prices, up sharply, triggering a stock market swoon that slammed highflying tech-related stocks hard and pushed the Nasdaq Composite to its worst session since October on Thursday. The 10-year rate is up more than 50 basis points since the year began, a sharp rise for a bond rate used as a benchmark for mortgage rates and auto loans. Rising yields can make bonds more attractive to investors relative to stocks, undercutting the longstanding “there-is-no-alternative” mantra among investors seeking yield with few other choices than equities, due to ultralow rates on government securities.
• Economists and investment managers say the bond market is reacting to positive economics as vaccines are rolled out and GDP forecasts improve, which should benefit corporate profits. But the move could also signal faster-than-expected inflation ahead.
• Shares of tech companies, which tend to be heavier borrowers and have seen the most stretched valuations, are seen as particularly vulnerable to a rise in yields.
• Fiscal Policy: The Senate on Thursday ruled against passing minimum-wage legislation through the budget reconciliation process.
• Economic Reports: US consumer spending increased in January for the first time in three months, after the government sent $600 stimulus checks to families and boosted unemployment benefits as part of efforts to shore up the economy. Consumer spending jumped 2.4%, the biggest increase since last June while incomes rose by a much larger 10%. The U.S. trade deficit in goods widened to $83.7 billion in January from a revised $83.2 billion in the prior month.

Which stocks were in focus Friday?

• Investors are shifting money into so-called reopening trades, buying the stock of companies that would benefit most from the vaccine rollout and a return to regular travel and dining trends.
• Energy gained 4.3% this week, bringing its February gains to more than 21%. Energy is the biggest winner by far amid expectations that consumers around the world will soon be driving and flying as they were before the Covid-19 pandemic. Financials also jumped 11% this month, benefitting from rising interest rates.
• Shares of Salesforce were down 6.3% after the company late Thursday topped estimates for profit and revenue but offered earnings guidance for the coming year that was below analyst estimates. Salesforce closed trading at $216.50.
• DoorDash Inc. shares gained 1.6% after the food-delivery company said in its first earnings report since going public that its revenue more than tripled in the fourth quarter, even as its net loss more than doubled. DoorDash shares closed at $169.49.
• Airbnb Inc. continued to hold up better than other online-travel companies in the holiday season, according to its first earnings report as a public company. Shares rocketed more than 13% on Friday, closing at $206.35.
• Shares of space exploration company Virgin Galactic slid 11.9%, closing at $37.23 after disappointing quarterly results.

How did the European markets perform?

• European stocks fell on Friday after global markets were roiled by a sudden spike in bond yields that sent investors fleeing highly valued segments of the market.
• The pan-European Stoxx 600 fell 1.6% and shed 2.4% for the week - its first weekly loss this month - with technology stocks losing the most as they continued to retreat from 20-year highs. Still, the benchmark STOXX 600 gained in February, helped by a rotation into energy, banking, and mining stocks on expectations of a pickup in business activity following vaccine rollouts.
• Shares in London led the region with the FTSE 100 is down 2.53% while France’s CAC 40 is off 1.39% and Germany’s DAX is lower by 0.67%.
• At the top of the European blue-chip index, France’s Teleperformance climbed 6.9% after JPMorgan raised its target price for the stock following a strong earnings report Thursday. Belgian telecom operator Proximus was the worst performer on the STOXX 600 for the day, after it flagged a lower core profit in 2021.
• In corporate earnings, IAG suffered a full-year operating loss of 7.4 billion euros ($9 billion), its largest in history, as the Covid-19 pandemic grounded aircraft around the world for a substantial portion of 2020. Shares climbed 3.1%.

How did Asian markets perform?

Asian markets finished sharply lower on Friday with shares in Japan leading the region. The Nikkei 225 is down 3.99% while Hong Kong’s Hang Seng is off 3.43% and China’s Shanghai Composite is lower by 2.12%.

Commodities and other assets

Oil futures retreated after touching a 22-month high a day ago, with the U.S. oil for April delivery off 31 cents, or 0.5%, to settle at $63.53 a barrel. Meanwhile, gold futures fell by $22.50, or nearly 1.3%, to settle at $1,775.40 an ounce, as the climb in yields continues to dog bullion buyers.

Currencies

• The USD gained on Friday as U.S. government bond yields held near one-year highs, while riskier currencies such as the Aussie dollar weakened.
• The ICE USD Dollar Index, a measure of the currency against a basket of six major rivals, was up 0.8% Friday as the dollar gained against other currencies.
• The USD gained against the yen, touching 106.69 for the first time since September.
• The euro dipped 0.79% to $1.2078 after touching a seven-week high of $1.2244 on Thursday.
• Riskier currencies retreated. The Aussie fell 1.99% to $0.7713, after topping $0.80 on Thursday for the first time since February of 2018.
• Bitcoin fell 0.32% to $46,946 while Ethereum dropped 0.7% to $1,468.

Next Week

• Investors will parse U.S. jobs data for February as they wait on details of the U.S. fiscal stimulus bill, which is expected to be passed in the coming weeks.
• Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.