S&P 500, Nasdaq snap 4-week win streaks as U.S. stocks drop and Treasury yields jump
By Christine Idzelis and Joseph Adinolfi
Fed's Barkin says central bank will do whatever it takes to tame inflation
U.S. stocks ended lower Friday, with the S&P 500 and Nasdaq Composite each snapping four-week win streaks, as investors digested more hawkish commentary out of the Federal Reserve and more than $2 trillion equity-linked options expired.
How did stocks trade?
For the week, the Dow slipped 0.2% while the S&P 500 fell 1.2% and the Nasdaq dropped 2.6%. The S&P 500 and Nasdaq each snapped a four-week stretch of gains, while all three major benchmarks saw their biggest weekly drop since the week ending July 1, according to Dow Jones Market Data.
What drove markets?
U.S. stocks fell Friday as investors assessed a jump in Treasury yields and the prospect of the Federal Reserve potentially sticking with its aggressive monetary policy tightening as it battles high inflation.
After the U.S. stock market's "tremendous" rally recently and with the "central bank tightening that's in the pipeline," it's an opportune time to trim back on equities, according to Keith Lerner, co-chief investment officer of Truist Advisory Services.
"Valuations are pretty elevated after the rebound," Lerner said in a phone interview Friday. A trading range for the S&P 500 of 4,200 to 4,300 is "less favorable" from a "risk-reward" perspective at this time, he said, while pointing to Friday's jump in Treasury yields as hurting growth stocks in particular.
The S&P 500's consumer-discretionary , communication-services and information-technology sectors were among the hardest hit sectors Friday, FactSet data show. Beyond growth stocks, the financials sector also fell sharply, which Lerner attributed to concerns that Fed interest-rate hikes to tame high inflation will lead to "a slower economy."
See: S&P 500 earnings are rising only because of strength in this one sector
The yield on the 10-year Treasury note jumped 10.8 basis points Friday to 2.987%, the highest since July 20 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. "That's a strong move," Lerner said, adding that 2-year Treasury yields also rose amid expectations for further rate hikes.
Meanwhile, inflation in Europe, including in Germany, is a reminder that "global central banks' work is not done yet," according to Lerner. He cited the sharp rise in Germany's producer prices, reported Friday, as influencing U.S. investors' concerns over high inflation and rising rates.
In the U.S., investors are assessing the odds of the Fed potentially raising its benchmark rate by 75 basis points at its September meeting.
St. Louis Fed President James Bullard told The Wall Street Journal on Thursday that he would "lean toward" a 75 basis point hike in September. Speaking Friday morning, Richmond Fed President Tom Barkin said the Fed "will do what it takes" to drive inflation back toward its 2% target, Bloomberg reported, while Reuters reported Barkin saying the Fed's efforts needn't be "calamitous."
Interest-rate-sensitive tech stocks have been bruised this week, with the Nasdaq dropping 2.6%, according to FactSet data. The S&P 500 booked a weekly drop of 1.2% while the blue-chip gauge Dow Jones Industrial Average slipped 0.2%.
That marked a pause from the stock market's recent rally. Last week the S&P 500 and tech-heavy Nasdaq each had booked their longest weekly win streaks since November 2021, after notching four straight weeks of gains.
See:Stock-market rally faces key challenge at S&P 500's 200-day moving average
Friday was devoid of major U.S. economic data, leaving investors to digest comments from Fed officials while dealing with the monthly expiration of more than $2 trillion worth of stock and index options. The expiration of options can exaggerate market moves, said Lerner.
Read: Friday's $2.3 trillion options expiration could remove a critical avenue of support for stocks, analysts say
Next week, investors will be shifting their focus toward what Fed Chairman Jerome Powell will say during the Fed's annual economic symposium in Jackson Hole, Wyo.
"I think everybody is just waiting for Jackson Hole, so I think there will be a lot of speculation over what Powell is going to say for the next five days," said Brad Conger, deputy chief investment officer at Pennsylvania-based Hirtle Callaghan & Co., which oversees about $20 billion in assets, mostly on behalf of university endowments.
See: Powell to tell Jackson Hole that recession won't stop Fed's fight against high inflation
Which companies were in focus?
How did other assets fare?
--Barbara Kollmeyer contributed to this report.
(END) Dow Jones Newswires
August 19, 2022 16:38 ET (20:38 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.