Dow sinks 400 points on ‘quad witching’ Friday, benchmark on verge of 5th straight loss

The U.S. government is closed on Friday after President Joseph Biden signed a bill Thursday making Juneteenth a national holiday commemorating the end of slavery in the U.S. However, the stock and bond markets remain open for business.

How are stock benchmarks trading?

• The Dow Jones Industrial Average DJIA, -1.47% was trading 393 points, or 1.2%, lower to reach 33,411, and had hit an intraday at 33,391.96 near the open.
• The S&P 500 SPX, -1.05% was down 39 points at 4,183, a slide of about 0.9%.
• The Nasdaq Composite Index COMP, -0.68% was trading 90 points, or 0.6%, to trade at 14,077.

On Thursday, the Dow closed down 210.22 points, or 0.6%, at 33,823.45, marking a four-day skid, its longest since January. The S&P 500 edged down 1.84 points, or less than 0.1%, to 4,221.86. The Nasdaq Composite gained 121.67 points, or 0.9%, to 14,161.35.

Weekly stats

For the week, the Dow is set to mark a weekly decline of 1.9%, its second weekly fall in a row and its steepest such drop since Jan. 29. The Nasdaq was aiming for a weekly gain of 0.7%, marking its fifth straight weekly climb, which would mark its longest weekly win streak since the period ended Aug. 28. The S&P 500 is down 0.6% for the week thus far, on track to snap a three-session weekly win streak.

What’s driving the market?

Blame it on quadruple witching or James Bullard as the market took a leg lower to end what was expected to be a week for investors looking for guidance from rate setters at the Federal Reserve.

And just as investors may have been attempting to gird themselves for a Fed that is less inclined to champion easy-money policies, Bullard offered a fresh dose of hawkishness, saying that he believed that the Fed should lift rates as early as late 2022.

In an interview on CNBC, Bullard said it was “natural” for the Fed to tilt hawkish at its meeting earlier this week given recent strong inflation readings, but he did also point to an economy that he viewed as recovering strongly from the COVID pandemic.

The St. Louis Fed president’s comments come after statements from the Federal Open Market Committee and remarks by Fed Chairman Jerome Powell already were viewed as setting the stage for a less accommodative stance by the central bank. Fed policy makers penciled in two rate increases by the end of 2023 and discussed the eventual tapering of the central bank’s asset buying program. 

Growing expectations that the U.S. central bank will raise rates as soon as 2023 has helped to yank equities down from record highs put in earlier this week by the S&P 500 and the Nasdaq Composite.

The tech-Nasdaq Composite has remained relatively buoyant, however, as a pullback in Treasury yields has encouraged buying in technology and tech-related, growth areas, which can be sensitive to rising borrowing costs.

Moves in longer-dated bonds have been pegged to some position unwinding as short term yields rose and long term yields fell, but some analysts wager that yields will eventually climb in response to a Fed that appears to be preparing the market for higher inflation and higher interest rates.

“Although long-term real yields have dropped back a bit after their initial surge, we expect them to rise again in due course,” wrote Thomas Mathews, market economist at Capital Economics, in a Friday research report.

Mathews is forecasting the S&P 500 index to pare its gains over the coming six months and see muted returns in the 2022 and 2023, amid a higher interest-rate regime.

“This would represent an annualized increase of ~4% from its current level, compared with ~13% in the past decade,” he forecast.  

Meanwhile, shares of U.S. airlines rose in premarket trading on Friday after the European Union reportedly recommended the lifting of a ban on nonessential travel for Americans across its member states. The EU the decision on Friday to add the U.S. to a “white list” of countries, and each country will now be able to decide what kind of restrictions, if any, to place on U.S. visitors, the New York Times and Bloomberg reported. 

There will be no U.S. economic data Friday as the government observes the Juneteenth holiday.

Which companies are in focus?

• Sykes Enterprises Inc. SYKE shares soared over 30% after the company announced an agreement Friday to be acquired by Sitel Group in a cash deal for the customer experience management services valued at $2.2 billion.
• Moderna Inc. MRNA said Friday it remains committed to creating jobs in Massachusetts and will hire at least 155 more people for high-tech manufacturing roles this year. Shares were up 0.7%.
• Shares of Orphazyme A/S ORPH plummeted in premarket trading Friday, after the Denmark-based biopharmaceutical company said overnight that it received a “Complete Response Letter” (CRL) from the U.S. Food and Drug Administration regarding its treatment for Niemann-Pick disease type C (NPC). U.S. listed shares were down 40%.
• Shares of Curevac CVAC rose 13% Friday. Shares of the German biotech have lost 34% this week after the company said a late-stage clinical trial of its COVID-19 vaccine was only 47% effective.

How are other assets faring?

• The yield on the 10-year Treasury note TMUBMUSD10Y was steady at around 1.50%.
• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, shot up 0.3% and has climbed 1.9% for the week, its sharpest weekly gain since the week of April 3 2020.
• Oil futures CL00 traded slightly higher, with West Texas Intermediate crude for July delivery up 0.2% at $71.23 a barrel. Gold futures GC00 traded off 0.1% at $1,773.40 an ounce.
• European equities slumped, with the pan-Continental Stoxx Europe 600 SXXP trading 1.3% lower. London’s FTSE 100 UKX declined 1.7%.
• In Asia, the Shanghai Composite SHCOMP closed flat, Hong Kong’s Hang Seng Index HSI ended 0.9% higher and Japan’s Nikkei 225 NIK shed 0.2%, on the day.