The bounce in U.S. stock indexes gathered some steam Friday as investors trolled for opportunities, but the benchmarks may still end with losses for the week on fears about the spread of the coronavirus delta variant, the imminent tapering of Federal Reserve bond buying, and China’s restrictions on its economy.
Friday’s recovery looked fairly broad based in midday trade, with all 11 sectors of the S&P 500 showing firm gains, led by utilities, technology and even energy stocks catching a bid after a withering week for the sector as oil prices have collapsed.
How are benchmarks trading?
The Dow Jones Industrial Average
gained 217 points, or 0.6%, at 35,110.
The S&P 500
traded 0.6% higher to reach 4,433, up 27 points.
The Nasdaq Composite Index
was trading 108 points, or 0.7%, higher at around 14,649.
On Thursday, major markets ended mixed, with the S&P 500 and Nasdaq Composite registering small gains, while the small-cap Russell 2000 ended 1.2% lower.
For the week, the S&P 500 is headed for a weekly slide of 0.7%, the Dow is on track for a 1.1% weekly decline, the Nasdaq Composite is on track for a 1.2% slump, while the small-cap Russell 2000 index
is down 3.2% so far this week.
What’s driving markets
Buy the week’s dip may be the tactic in play on Friday, with investors scooping up shares of information technology
and turning to embattled energy
among the worst performers for the week.
The energy sector is down 7% so far this week, while financials are off 2.3%, FactSet data show. Consumer staples
are up 0.6%, healthcare
is up 1.8%, and utilities
saw a gain of 1.6%, which are largely defensive plays. Technology, meanwhile, was erasing its weekly slide.
All week, concerns about a sharp rise in U.S. COVID cases, hospitalizations and deaths have tamped down bullishness, as the daily average of new U.S. cases over the past seven days rose to 143,827 as of Thursday, up 44% from two weeks ago and the most since Feb. 1, according to a New York Times tracker.
The change in the complexion of the viral spread is also causing some Fed members to rethink tapering strategies.
Researchers at Capital Economics said that delta’s spread continues to weigh on prices, particularly in the commodity complex. “Commodity prices mostly fell this week on the back of a stronger US dollar as well as mounting concerns over the demand outlook,” Capital Economics economists wrote in a Friday note.
Indeed, Dallas Federal Reserve President Rob Kaplan said he may reconsider his call for the central bank to quickly start to taper its monthly buying of $120 billion in Treasury and mortgage-backed securities if it looks like the spread of the coronavirus delta variant is slowing economic growth.
“It is in all of our interest to slow the spread, and right now we’re in a negative trend,” Kaplan said in an interview with Fox Business Network on Friday. Kaplan said the delta variant has caused him to have an open mind about the path of monetary policy. He called the delta variant “the big imponderable” in the outlook.
Michael Hartnett, chief investment strategist at Bank of America, says the market is acting in a recessionary fashion.
“The key 10-year yields were barely changed as equities reversed, suggesting that the move was more about the top-down risks to growth building, specifically around the delta variant, after several weeks when the bottom-up corporate news has provided support,” said Ian Williams, a strategist at U.K. broker Peel Hunt.
The U.S. yield curve, as measured by the gap between the 5-
TMUBMUSD05Y and 30-year
bonds, is at its flattest in a year. Global stocks excluding U.S. technology shares are unchanged the last eight months. Emerging market stocks are negative this year. U.S. small-cap stock prices are breaking down. A range of commodity prices have fallen by double-digit percentages from highs. And the top four sectors of the S&P 500 index in the second half of the year so far are utilities, healthcare, REITs and staples.
And the Cboe Volatility Index
often referred to by its ticker symbol VIX, a measure of implied stock market volatility, jumped in the early hours Friday, while the U.S. dollar
reached a fresh nine-month high.
Which companies are in focus?
Shares of Mudrick Capital Acquisition Corp. II MUDS were in focus Friday, after the special-purpose acquisition company, SPAC, said the merger agreement that would’ve have taken The Topps Company public has been terminated “by mutual agreement.”
Shares of Deere & Co. DE edged up in premarket trade after the construction, agriculture and turf care equipment maker reported fiscal third-quarter profit that more than doubled and was well above expectations, and raised its full-year net income outlook.
LumiraDx Ltd. and SPAC CA Healthcare Acquisition Corp. said Friday the value of their merger deal to take LumiraDx public has been cut by 40%, citing “various considerations,” including recent market environment for publicly traded diagnostic companies and declines in COVID-19 testing volumes.
How are other assets faring?
The yield on the 10-year Treasury note TMUBMUSD10Y 1 basis points to 1.235%. Yields fall as bond prices rise.
The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, rose 0.1% and traded around a nine-month high.
Oil futures were set for a seventh straight decline, with the U.S. benchmark CL00, down more 2% at $63.31 a barrel, headed for a 9% decline and its sharpest weekly slide in nine months. Gold futures GC00, were up 0.1% near $1,786 an ounce.
In Asia, Hong Kong’s Hang Seng HK:HSI suffered another rough session, falling 1.8%, as the index is now 19% below its February high on the continued regulatory crackdown in China. China on Friday passed a strict data privacy law that is due to take effect in November. Meanwhile, while the Shanghai Composite SHCOMP shed 1.1% and Japan’s Nikkei 225 NIK declined 1%