Wall Street was headed for an uninspired day of trading Friday.
Angela Weiss/AFP/Getty Images
Stocks fell on Friday, as investors weighed recently published better-than-expected economic data against less economic support from the Federal Reserve.
Friday’s close continued a recent pullback in the major U.S. indexes, which has been partially driven by companies issuing lower earnings forecasts.
The Dow Jones Industrial Average dropped 166 points, or 0.5%. The index slipped 63 points on Thursday to close at 34,751. The S&P 500 and Nasdaq Composite each fell 0.9%.
The S&P 500 is down 2.3% from its all-time high, hit on Sept. 2. Many companies have lowered their quarterly earnings estimates because they can’t access the supplies needed to meet demand. Firms are incurring higher costs as a result, threatening profit margins. On Thursday, U.S. retail sales beat expectations, a positive, but also a development that could make it more likely that the Federal Reserve will lower its bond purchases at a faster pace.
The speed of that program matters: The Fed will likely lower its purchasing program to zero from $80 billion per month within a few quarters. As the Fed “tapers” its purchases down to zero, bond prices could fall and their yields could rise. That makes future profits less valuable—and would be bad news for stock prices.
“Without the infusion of the Fed buying, several quarters down the road, that only signifies a market that will have higher rates,” says Kevin Simpson, founder and portfolio manager at Capital Wealth Planning. The speed of the Fed’s tapering “is the only unknown that’s out there,” Simpson says.
The yield on the 10-year Treasury bond rose to 1.38%. In the coming days, “the bond market selloff could see further momentum,” wrote Edward Moya, senior market analyst at Oanda. “Investors are expecting Fed Chair Powell to set up a November taper.”
Investors are also paying close attention to when the Fed will lift short-term interest rates in response to inflation. The yield on the 2-year Treasury note rose to 0.23%.
Overall, some degree of indecisiveness seems to be prevailing in the market. The S&P 500 has largely remained on an upward path in the second half of the year, wrote Fiona Cincotta, senior financial markets analyst at City Index. But for the immediate term, the index is unlikely to push much past its all-time high of 4,536 until it rises about 1.3% above its closing level Friday.
In the 13 trading day stretch ended Thursday, there were only two days during which 70% or more S&P 500 stocks rose, according to Instinet data, compared to six days of such breadth in the prior 13 trading days. Just 24% of stocks in the index rose Friday, according to FactSet.
Still, the index is trading at a level that doesn’t suggest a big correction has necessarily begun, Cincotta said.
When the Fed holds its monetary policy meeting next week, most on Wall Street do not expect the central bank to make a formal tapering announcement. Fed members likely need to see the September payrolls report, out in October, before deciding the economy is ready for less stimulus, Simpson says.
Overseas, Hong Kong’s Hang Seng Index rose 1% as Chinese technology stocks surged, with the Hang Seng Tech Index rising 3.5% for one of its best days in the past month. The pan-European Stoxx 600 was 0.9% lower.
Futures contracts for oil eked out a small gain. International oil benchmark Brent futures rose 0.1% to above $75 a barrel.
These 14 stocks were on the move Friday:
Invesco (ticker: IVZ) shares surged 5.5% after The Wall Street Journal reported that the exchange-traded fund giant was in merger talks with State Street
‘s asset management business.
China’s tech giants broadly rose in Hong Kong, with Alibaba (BABA) rising 2.2%, Tencent (0700.H.K.) 2.4%, Baidu (9888.H.K.) 2.4%, and JD.com (9618.H.K.) 4.6%.
European travel stocks were buoyed amid reports that the U.K. would significantly loosen travel rules related to the Covid-19 pandemic. British Airways owner IAG (IAG.U.K.) climbed 4.9% as InterContinental Hotels Group (IHG.U.K.) lifted 2%.
Commerzbank (CBK.Germany) moved 1.2% higher, after local German media reported that U.S. private-equity group Cerberus was considering building a greater stake in the bank after the German elections later this month.
Evergrande (3333.H.K.) dropped 3.4%, as China’s embattled and highly indebted property giant remains under threat of restructuring.
Diamondback Energy (FANG) stock gained 3.2% after the oil producer announced a share buyback plan that could be as large as $2 billion.
Las Vegas Sands (LVS) stock initially fell, but finished up 1.7% after getting downgraded to Hold from Buy at Jefferies. Potential Chinese regulation on the casino business has battered the stock this week.
Wynn Resorts (WYNN) fell 1.3% on Friday, as losses have begun to moderate. The stock dropped 18% this week.
Lincoln National (LNC) stock rose 1.4% after the company announced a $9.4 billion reinsurance agreement with a division of Denver Insurance Company.
O’Reilly Automotive (ORLY) stock fell 1.2% after getting downgraded to Neutral from Buy at Bank of America.
Write to Jack Denton at [email protected] and Jacob Sonenshine at [email protected]
