U.S. stocks were trading mixed Friday afternoon, with the S&P 500 about flat, as the recent rise in bond yields and China’s economic woes left stocks heading for another losing week.
How stock indexes are trading
-
The Dow Jones Industrial Average
DJIA
was up almost 25 points, or 0.1%, at 34,499. -
The S&P 500
SPX
was flat at around 4,370. -
The Nasdaq Composite
COMP
shed almost 15 points, or 0.1%, to 13,302.
For the week, the Dow was heading for a 2.2% decline while the S&P 500 was on pace to slide 2.1% and the Nasdaq was on track to drop 2.5%, according to FactSet data, at last check.
What’s driving markets
U.S. stocks were mostly down Friday afternoon after a recent rise in Treasury yields to the highest levels since the 2008 financial crisis .
The big story in markets this week has been the deteriorating value of longer-duration government bonds, with the 10-year yield
BX:TMUBMUSD10Y
near its highest level since 2008, and the 30-year yield
BX:TMUBMUSD30Y
at its highest level in more than a decade. Treasury yields were slightly lower on Friday, but equities remained under pressure.
The recent jump in yields is “roiling the market,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute, in a phone interview Friday. This week’s decline in stocks is “mainly tied to higher yields and the potential for the Fed to do more” tightening of its monetary policy to bring down inflation.
“For us, there’s more downside here” in stocks after a large rally earlier this year said Wren, pointing to Wells Fargo Investment Institute’s expectation for the S&P 500 index to end 2023 at 4,100. That’s around 6% lower than the index’s current trading level.
“A few months ago if we were to predict a pullback in the equity market we’d say the catalyst was recession,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “Instead, the August pullback is driven by equity investors concern over the bond market and China. Bond yields have surged higher, making investors nervous.”
“Investors are concerned that if bond yields continue going higher, the economy is too strong and the Fed will need to raise interest rates further. And with the bond yield high enough, that poses competition for equity investors who feel the bond market is less risky than the stock market right now,” he said, in emailed comments, while noting that even with the current pullback, the market is still up for the year.
The S&P 500 has risen almost 14% so far in 2023, FactSet data show, at last check.
Most of the recent unwind in the stock market has been tied to tech-related companies that had gotten a lift from the exuberance surrounding artificial intelligence, said Dave Grecsek, managing director in investment strategy and research at Aspiriant, in a phone interview Friday. That reset is “healthy,” as it has removed some of the froth from the U.S. stock market, he said.
Need to Know: Bond yields hold the key to an emotional market that can change on a dime, says this strategist
Market attention also is focused on China, after builder Evergrande filed for bankruptcy protection in U.S. courts, and the People’s Bank of China stepped in to help its beleaguered currency.
Worries about the solvency of Evergrande’s sector peer Country Garden “haven’t helped either, along with worries over contagion to the shadow banking system, after Chinese asset manager Zhonghzi missed a coupon payment, has added to the uncertainty,” said Michael Hewson, chief market analyst at CMC Markets UK, in a note.
See: Global investors expect China to deliver a massive fiscal stimulus. Here’s why it may never arrive.
The monthly U.S. expiration of stock options contracts may add volatility, particularly were the S&P 500 to decline to the 4,320 level, according to Nomura strategist Charlie McElligott.
There was no U.S. economic data released on Friday, ahead of next week’s gathering of Federal Reserve officials in Jackson Hole, Wyoming.
Companies in focus
-
Deere & Co.
DE,
-5.57%
stock fell around 5% despite the farm equipment maker’s third-quarter profit and its 2023 guidance beating analyst estimates. -
Applied Materials Inc.
AMAT,
+3.94%
shares rose 3.5% after the chip industry equipment supplier reported earnings and forecast an outlook that topped Wall Street expectations. -
Shares of Estée Lauder Inc.
EL,
-3.69%
fell 2.5%, after the cosmetics company posted better-than-expected earnings for its fiscal fourth quarter but offered guidance that lagged consensus. -
U.S.-listed China ADRs were under pressure as the People’s Bank of China boosted its yuan defense and property developer China Evergrande Group filed for bankruptcy protection in New York late Thursday. Shares of JD.com Inc.
JD,
-4.89% ,
Bilibli Inc.
BILI,
-6.29% ,
NIO Inc.
NIO,
-7.00%
Alibaba Group Holding Ltd.
BABA,
-2.88%
were all falling sharply.
Steve Goldstein contributed to this report.
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