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U.S. stock indexes were lower Friday, with the indexes trying to avoid slumping for a third week in a row, amid uncertainty about a fresh round of fiscal stimulus from Washington lawmakers and concerns about tensions between the U.S. and China.
The day’s trading action marks quadruple witching, which refers to the simultaneous expiration of single-stock options, single-stock futures, and stock-index options and stock-index futures, which has traditionally been associated with some intraday volatility.
How are equity benchmarks performing?
The Dow Jones Industrial Average DJIA, -0.61% was trading 75 points, or 0.3%, lower at 27,827, the S&P 500 index SPX, -1.05% was off 24 points, or 0.7%, at around 3,333, after swinging between slight gains and losses in early trade near its 50-day moving average at 3,343.34. The Nasdaq Composite Index COMP, -1.54% was trading 124 points, 1.1%, lower, at about 10,786.
On Thursday, the Dow closed 130.40 points, or 0.4%, lower at 27,901.98, snapping a four-session win streak. The S&P 500 index fell 28.48 points to end at 3,357.01, a decline of 0.8%, following a momentary dip below its 50-day moving average at around 3,339. The Nasdaq Composite retreated 140.19 points, or 1.3%, to 10,910.28.
For the week, the Dow is on pace for a weekly gain of 0.6%, while the S&P 500 is on track for a decline of 0.2%. The Nasdaq is looking at a 0.6% weekly drop.
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What’s driving the market?
Market participants were experiencing bumpy trade on Friday as gains for the week were in danger in trading around the expiration of futures and options contracts.
Wrangling by investors over the long-term impact of the Federal Reserve’s policy update on Wednesday is still rippling through the market after the central bank indicated that the economic recovery could be a long one and that it did not expect to lift interest rates for at least another three or four years,
The central bank’s policy update on Wednesday marked its first since it outlined its average-inflation target strategy to avoid falling into the quicksand of low inflation by keeping interest rates close to 0% until the labor market achieves maximum employment and inflation has risen to its 2% target “and is on track to moderately exceed 2% for some time.”
That intention is “a unilaterally supportive message for stocks and risk assets over the long term,” said Michael Stritch, chief investment officer at BMO Wealth Management.
The challenge for investors, Stritch noted, is the near term. “We’re going to need some political clarity, and we have to get some vaccine clarity. There are a lot of assumptions out there right now and until some of those are confirmed or refuted, we will probably continue to see choppiness.”
For now, Stritch’s team is favoring what he calls “quality growth” stocks. “I don’t want to embrace a cyclical value story just yet,” he said in an interview. “I would to pay up for certainty rather than make a big bet on timing the economic recovery.”
On Friday, St. Louis Fed President James Bullard during a speech, suggested that there are a number of scenarios that might result in stubbornly low inflation picking up steam toward the central bank’s former annual 2% target, including supply bottlenecks to surging deficits.
But Bullard’s comments come after Minneapolis Federal Reserve President Neel Kashkari on Friday, described talk of a surge in inflation as “ghost stories,” in an essay posted on his regional bank’s website, taking dead aim at the Fed’s yearslong struggle in achieving 2% inflation. Kashkari was one of two dissenters in the Fed’s latest policy action. Dallas Fed President Rob Kaplan favored the Fed’s prior guidance
In a separate interview Friday, Atlanta Fed President Raphael Bostic said the COVID-19 pandemic has generated “a lot of noise” in the inflation data.
Meanwhile, investors continue to look for progress on fiscal stimulus talks from Washington lawmakers that is considered by many crucial to markets sustaining current gains and advancing further amid the economic wreckage created by the COVID-19 pandemic.
Reports indicate that Democrats and Republicans remain at an impasse over another round of coronavirus relief despite President Donald Trump’s urging for a deal to be struck soon. Lawmakers, however, planned to introduce a bill midday Friday that would see the government funded through mid-December.
House Democrats had passed a $3.5 trillion relief bill in May, but more recently in negotiations with White House officials said they would accept a $2.2 trillion deal, the Wall Street Journal reported. House Speaker Nancy Pelosi said Democrats could push for more than their previous offer of $2.2 trillion but isn’t willing to advocate for anything less than her less proposal.
“When we go into a negotiation it’s about the allocation of the resources,” she was quoted as saying on Thursday by The Hill in a reporter briefing. “But it’s hard to see how we can go any lower when you only have greater needs.”
Meanwhile, the Fed is embarking on a second round of stress tests for the banking sector amid the coronavirus epidemic and is reportedly considering extending limits to dividend payments and share buybacks on the industry.
On the geopolitical front, the U.S. Commerce Department said Friday it is prohibiting transactions involving Tencent’s WeChat and Bytedance’s TikTok. The order makes no mention of the Oracle Corp. ORCL, -0.50% deal with TikTok but said “the President has provided until November 12 for the national security concerns posed by TikTok to be resolved.” The news highlights lingering Sino-American testiness.
Separately, the University of Michigan said the preliminary reading of its U.S. consumer sentiment index in September was 78.9, up from 74.1 in the prior month, better than average estimates from economists polled by MarketWatch, who expected a reading of 75.9.
In other economic reports, the U.S. current-account deficit, a measure of the nation’s debt to other countries, widened sharply in the second quarter. The current-account deficit widened to $170 billion from a revised $111.5 billion in the first quarter.
Looking ahead, investors are watching for a report on consumer sentiment that is due at 10 a.m. Eastern Time. Atlanta Fed President Raphael Bostic speaks at 12 p.m.
Which stocks are in focus?
- XL Fleet, a provider of electric vehicle technology, said Friday it has agreed to merge with Pivotal Investment Corporation II PIC, +13.17% , a special purpose acquisition corporation, or SPAC, in a deal with a pro forma enterprise value of about $1 billion. Shares of PIC were up 13%.
- Shares of Swiss-based Roche Holding AG ROG, +1.84% were in focus on Friday after the drug maker said hospitalized COVID-19 patients taking rheumatoid arthritis drug Actemra were less likely to need mechanical ventilation than those receiving placebo. U.S. listed Roche shares were up 1.2%.
- Shares of U.S. Steel Corp. X, +7.25% rose 8.2% Friday, after the steel producer provided an upbeat third-quarter outlook, including a “significantly better” performance expected for its flat-rolled business and signs that the tubular business has bottomed.
- Shares of Tesla Inc. TSLA, +3.03% were up 4% in early Friday trade.
- Oracle ORCL, -0.50% shares were down 0.5% amid the TikTok developments.
How are other markets faring?
The yield on the 10-year Treasury note TMUBMUSD10Y, 0.687% were little-changed at 0.687%. Bond prices move inversely to yields.
The ICE U.S. Dollar Index DXY, -0.16%, which tracks the performance of the greenback against its major rivals, was off 0.1% at 92.84.
Gold futures GCZ20, +0.83% headed 0.6% higher on Comex to $1,961.70 an ounce. Futures for the U.S. crude oil benchmark CL.1, +0.02% picked up cents, or 0.5%, to reach $41.21 a barrel as OPEC+ emphasized the importance of complying with output cuts during their monthly meeting on Thursday.
Stoxx Europe 600 index SXXP, -0.66% and the U.K.’s benchmark FTSE 100 UKX, -0.70% both headed 0.7% lower on Friday. In Asia, Hong Kong’s Hang Seng Index HSI, +0.47% closed 0.5% higher and the Shanghai Composite SHCOMP, +2.06% lost advanced 2.1%. Japan’s Nikkei NIK, +0.17% inched up 0.2%.
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