Week 9 in Brief
Stocks rebounded on Friday, as the rise in bond yields steadied, driven by a stronger-than-expected February jobs report which indicated the US economy is recovering from the effects of the pandemic.
Investors continued to rotate out of big technology shares and into the cyclical sectors that tend to thrive in a recovering economy. The market’s volatility reflects a so-called rotation out of highflying technology stocks, viewed as expensive by some measures, to other areas of the market considered undervalued, including energy and financials, amid the rise in bond yields.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average closed higher by 572.16 points, or 1.9%, around 31496.30, after trading as high as 31,580.33 and a low at 30,766,81 and posted a 1.82% this week.
- The S&P 500 added 73.47 points to close at 3,841.94, a gain of 2% and a 0.81% gain for this week.
- The Nasdaq Composite gained 196.68 points, or 1.6%, to settle at 12,920.15, its best one-day rebound in about a year but still ended down 2.06% this week.
- For the week, the Dow gained 1.8% and the S&P 500 added 0.8%. The Nasdaq was 2.1% lower for the week, but Friday’s rebound put it back above water for the year to date, if barely.
What drove the market?
- Market volatility: Investors continued to rotate out of big technology shares and into the cyclical sectors that tend to thrive in a recovering economy. The market’s volatility reflects a so-called rotation out of highflying technology stocks, viewed as expensive by some measures, to other areas of the market considered undervalued, including energy and financials, amid the rise in bond yields.
- Economic Reports: Markets are wrestling with good news on the economic front and what that means for bond yields after the U.S. created 379,000 new jobs in February—marking the biggest increase in four months. The unemployment rate ticked down to 6.2% from 6.3%. Those figures add to signs of slow improvement in the labor market after data on Thursday showed filings for unemployment benefits reached their lowest level in three months.
- Rising Treasury Yields: The potential for more widespread economic growth and higher interest rates has reduced the relative appeal of technology and other growth-oriented shares that had rallied throughout much of the pandemic. Stocks have stumbled in recent weeks as a climb in bond yields has called into question whether low interest rates, which propelled valuations higher for much of the past year, will continue. Yields, which rise as bond prices fall, have rallied in response to expectations of a quickening pace of growth and inflation as the economy reopens from the coronavirus pandemic. Friday afternoon, the yield on the 10-year Treasury note was down about 1 basis point to 1.553%, after a sharp rise this week in the wake of comments from Federal Reserve Chairman Jerome Powell on Thursday that were seen as insufficiently concerned about the possibility of inflation as the economy recovers with support from another fiscal stimulus from Washington.
- Fiscal Stimulus: President Joe Biden’s $1.9 trillion COVID-19 financial aid plan is inching through the Senate and is expected to gain approval sometime over the weekend.
Which stocks were in focus Friday?
- Technology stocks have borne the brunt of the shift in sentiment in recent weeks. Tesla shares, for example, are off 32% from their Jan. 26 record after falling 3.8% Friday. Shares of the electric-vehicle maker have fallen in six of the past seven trading days. Energy stocks, by contrast, have surged in the new year and are leading the S&P 500’s 11 sectors. The group ended the week up 10%.
- Shares of Chevron rose 4.2% Friday after the company said it has entered an agreement to acquire the 33.925 million shares of Noble Midstream Partners it doesn’t already own in an all-stock deal. Shares closed at $109.00.
- Hibbett Sports Inc. said Friday it had net income of $23.9 million, or $1.39 a share, in its fiscal fourth quarter to Jan. 30, up from $6.0 million, or 34 cents a share, in the year-earlier period. Its shares were off 3.9%.
- Shares of Norwegian Cruise Line Holdings dropped 12.3% (closing at 28.85) after the cruise operator said it started a public offering of 47.58 million shares.
- GameStop shares closed 4% higher, at $ 137.74, notching a weekly gain of over 35%, and just missed closing with a market cap of $10 billion.
How did the European markets perform?
- European equities closed lower on Friday as bond yields rose on inflation expectations that were pushed up by strong U.S. payrolls data, although the STOXX 600 index marked a weekly gain on strength in growth-sensitive sectors.
- The pan-European STOXX 600 dropped 0.8% on the day, with shares of travel and financial services firms leading losses. The index rose 0.9% for the week, as optimism over an eventual economic recovery this year saw investors pile into sectors most likely to benefit from a bounceback. Automobile stocks outpaced their regional peers with a 4.9% jump.
- Data showed orders for German-made goods rose by twice as much as expected in January as robust foreign demand more than offset domestic weakness. Analysts expect overseas demand to support the eurozone manufacturing sector this year.
- Among individual movers, the London Stock Exchange Group dropped to the bottom of the STOXX 600 as analysts scrutinized the costs for integrating data and analytics company Refinitiv.
- In France, aircraft manufacturer Dassault Aviation fell 3%, closing at 918.50 EUR after recording a drop in quarterly adjusted operating income.
How did Asian markets perform?
Asian markets finished lower on Friday with shares in Hong Kong leading the region. The Hang Seng is down 0.35% while Japan’s Nikkei 225 is off 0.23% and China’s Shanghai Composite is lower by 0.04%.
Commodities and other assets
- Oil prices rallied for a second day Friday after OPEC and a Russia-led coalition of oil producers kept most of their production cuts in place, taking the market by surprise. Brent crude rose 3.9% to $69.36 a barrel. The cartel’s decision will push the international energy benchmark to $75 a barrel in the second quarter and $80 in the third, analysts at Goldman Sachs Group said.
- Meanwhile, gold futures lost $2.20 to $1,698.50 an ounce. Silver for May delivery fell 17 cents to $25.29 an ounce and May copper rose 10 cents to $4.08 a pound.
- The USD rose 0.3%, as measured by the ICE U.S. Dollar Index.
- The dollar rose to 108.34 Japanese yen from 107.91 yen while the euro fell to $1.1912 from $1.1966.
- Interest rates and the bond market are likely to continue driving the stock market’s next move, and investors can be prepared to start buying the dip the next time the market suffers a big decline.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.