Dow clings to gain as Nasdaq slides, headed for first back-to-back weekly loss since December

The Nasdaq Composite was on track for its second red week, the first such string of declines since the week ended Dec. 30.

What’s driving markets

With the exception of the Dow, which has outperformed this week, U.S. stock indexes were slipping lower Friday after investors received some disappointing data on wholesale-price inflation. The U.S. producer price index rose 0.3% in July, the Labor Department said Friday, up from a revised flat reading in June and the largest gain since January.

The report stoked fears that inflation in the U.S. could rebound following Thursday’s promising report on consumer prices, which showed price growth was subdued at 0.2% for the second month in a row in July.

The PPI data, combined with a lackluster reading on consumer sentiment from the University of Michigan, helped rattle investors who have become too optimistic about the outlook for the U.S. economy and the Federal Reserve’s plans, said Gene Goldman, CIO of Cetera Investments.

He also pointed out that, for the second Friday in a row, the S&P 500 has surrendered its gains heading into the final stretch of trading for the week, suggesting that investors are nervous about holding stock-market exposure over the weekend.

“The market has been ignoring all the bad news out there, they’ve been too optimistic about a soft landing,” Goldman said during a phone interview with MarketWatch. “The fact that stocks sold off again on Friday afternoon to me screams ‘uncertainty.’”

Investors fears were briefly assuaged after the release of UMich sentiment data. Although it showed consumers’ outlook on the economy has soured slightly since the beginning of August, a separate reading showed inflation expectations one year and five years out had declined.

Americans’ expectations for overall inflation over the next year slipped to 3.3% from 3.4% in July, while expectations for inflation over the next five years declined to 2.9% from 3%.

“I think the consumer sentiment data helped offset some of the negative news from today’s PPI report. However, it looks like the overall uncertainty trend is reasserting itself now that the S&P 500 is back in negative territory,” said Sam Stovall, chief investment strategist at CFRA Research, during a phone interview with MarketWatch.

Rising Treasury yields also added to the pressure on stocks. The 10-year note yield was up 3.8 basis points at 4.140% in recent trade. The yield has risen roughly 10 basis points since the start of August, and it has added about 40 basis points since July 19, FactSet data show.

Stocks have pulled back in the past couple of weeks as rising Treasury yields have weighed on valuations, while earnings reports from the biggest U.S. companies failed to impress investors after such a strong year-to-date rally for the S&P 500 and Nasdaq.

On Thursday, stocks initially rallied after consumer price inflation data were released. However, the market gave up most of its strong post-data gains after San Francisco Fed President Mary Daly said there was more work to be done to lower inflation, and after an auction of 30-year bonds
BX:TMUBMUSD30Y
didn’t elicit demand as strong as the 3-
BX:TMUBMUSD03Y
and 10-year note auctions of the previous two days.

Companies in focus

• UBS
  UBSG,
  +4.72%

  UBS,
  +4.81%
  shares rose after the Swiss bank decided to sever the backstop the Swiss government gave to absorb Credit Suisse, a bet there are no hidden skeletons that will emerge that will hurt the bank in the way Countrywide’s acquisition dragged down Bank of America.

• The iShares MSCI China exchange-traded fund
  MCHI
  tumbled as shares of Chinese companies trading in the U.S. sank as property developer Country Garden Holdings Co.’s financial troubles cast a pall on the group. Shares of Alibaba Group Holding Ltd.
  BABA,
  -4.28%
  and Nio Inc.
  NIO,
  -2.93%
  sank on the news.