MARKET SNAPSHOT
Friday afternoon saw U.S. stocks predominantly lower, with the Dow Jones Industrial Average slightly up, while concerns over China’s economy and the surge in bond yields contributed to a third consecutive weekly loss.
Current Trading Status
- Dow Jones Industrial Average: Up by 14 points (less than 0.1%) at 34,489.
- S&P 500: Down by nearly 4 points (0.1%) at around 4,367.
- Nasdaq Composite: Dropped almost 35 points (0.3%) to 13,282.
Weekly Outlook
For the week, the Dow was on track for a 2.3% decline, the S&P 500 was set to slide 2.2%, and the Nasdaq was poised to drop 2.7%, according to FactSet data.
Market Factors
U.S. stocks faced downward pressure due to the recent surge in Treasury yields, reaching levels not seen since the 2008 financial crisis.
The focal point of the week has been the diminishing value of longer-duration government bonds. The 10-year yield is near its highest since 2008, while the 30-year yield is at levels not witnessed in over a decade. Despite a minor decline in Treasury yields on Friday, equities remained under strain.
Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, highlighted that the recent yield surge has greatly impacted the market. He mentioned that the stock decline this week is primarily attributed to higher yields and the potential for the Fed to implement more tightening measures to combat inflation.
Wren noted, “For us, there’s more downside here.” Wells Fargo Investment Institute predicts the S&P 500 index to reach 4,100 by the end of 2023, about 6% lower than its current level.
China Concerns
Market attention also focuses on China, as Evergrande’s bankruptcy protection filing in U.S. courts and the People’s Bank of China’s intervention to aid its currency raised apprehensions.
Michael Hewson, Chief Market Analyst at CMC Markets UK, emphasized that worries extend to Evergrande’s sector peer Country Garden and concerns about contagion to the shadow banking system after Chinese asset manager Zhonghzi missed a coupon payment.
Volatility and Economic Outlook
The monthly U.S. expiration of stock options contracts might add volatility, particularly if the S&P 500 were to decline to the 4,320 level, according to Nomura strategist Charlie McElligott.
No U.S. economic data was released on Friday, ahead of the upcoming gathering of Federal Reserve officials in Jackson Hole, Wyoming.
Notable Companies
- Deere & Co.: Despite exceeding analyst estimates for Q3 profit and 2023 guidance, the farm equipment maker’s stock fell over 5%.
- Applied Materials Inc.: The chip industry equipment supplier’s shares rose over 3% due to better-than-expected earnings and a positive outlook.
- Estée Lauder Inc.: The cosmetics company’s stock declined by 2.4% despite posting better-than-expected earnings for Q4 but offering lagging guidance.
- U.S.-listed China ADRs: Shares of JD.com Inc., Bilibli Inc., NIO Inc., and Alibaba Group Holding Ltd. fell sharply amidst concerns over China’s economic turmoil.
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