The stock market staged a turnaround this week after experiencing the worst day in months, as fears related to China Evergrande Group faded and the Federal Reserve gave no indication that it will reduce economic support faster than expected. The market was fairly calm on Friday.
The S&P 500 rose 3.4% from its Monday low, the worst point of the index’s larger pullback. On Monday, the S&P 500 posted its biggest point and percentage point decline since May 12. Stocks began rebounding as the Chinese government injected about $30 billion into its banking system, soothing fears that Evergrande’s troubles will spillover into the global economy. And while the Federal Reserve made clear it will soon reduce its bond buying program, markets expect the Fed will do so at a moderate—not rapid—pace.
The S&P 500 ended this week with a 0.5% gain and currently sits above its 50-day moving average, a key technical indicator.
As for Friday, “today is a day of reset after all that we’ve been through this week,” says JJ Kinahan, chief market strategist at TD Ameritrade. “There’s been so much news in such a short period of time, people are hitting the reset button and saying, ‘Let’s see what happens this weekend and not expose ourselves if we don’t have to.’”
U.S. Treasury bond yields have surged as global demand seems to be down for the moment. Global bond investors often pile into higher yielding U.S. debt when yields around the globe remain low, sending the price of U.S. debt up and yields down. That trade has reversed of late.
The yield on 10-year note climbed to 1.46% Friday—its highest since July, but still well off the 1.75% peak from March 2021. The yield was hovering around 1.32% earlier this week. This comes after the yield on the U.K. 10-year Gilt has risen to 0.84%, after hovering around 0.7% to start the week. The rise makes U.S. debt slightly less attractive and was spurred by the Bank of England’s indication that it may hike interest rates as soon as the first quarter of 2022.
“The hawkish Bank of England meeting was the catalyst for the move higher in yields and we know that because 10-year GILT yields surged and pulled Treasury yields higher,” writes Tom Essaye, founder of Sevens Report Research.
Surging long-term bond yields put an outsized dent into valuations for growth companies because those firms are valued on a relatively long-term basis. While the technology-heavy Nasdaq didn’t move much, it was down half a percentage point at one point during the day. The
Russell 2000 Growth Index
“As rates have gone up, people have sold growth and on to value,” Kinahan said.
Still, the move down in growth stocks was fairly minor. “It’s not like an incredibly bad move where it’s so concerning—some small portfolio adjusting, rather than a definite people are panicked about it,” said Kinahan.
While the moves in the major indexes were nothing to write home about, the stock market was a bit stronger than it looked, as many sectors were seeing gains. The
Invesco S&P 500 Equal Weight
Exchange-Traded Fund (RSP), which reflects the breadth of stocks rising or falling, gained 0.2%.
Elsewhere, China captured attention once again on Friday, and not just for the drama at China Evergrande. The country’s regulators released a statement saying that cryptocurrency transactions are illegal and should be banned.
The price of Bitcoin dropped close to 6%, to around $42,000. Ethereum and Litecoin sold off about 6% and 7.5%, respectively.
As for China Evergrande (3333.H.K.), the stock dropped 11.6% in Hong Kong as reports said that the company had failed to make an $83 million interest payment on an offshore bond denominated in dollars.
Fortunately for global stock investors, “the Chinese government is sensitive to the need to avoid wider financial risks, and would not allow the Evergrande situation to develop into a Lehman-like scenario,” writes Seema chief strategist for
Shares in Evergrande’s electric vehicle venture, Evergrande New Energy Auto (0708.H.K.), dropped 23.4% amid reports that it had fallen behind on payments to workers and suppliers.
Overseas, Tokyo’s Nikkei 225 rose 2.1% as Japanese traders returned from holiday and welcomed upbeat inflation data. Germany’s DAX fell 0.7%, as the country heads into a federal election over the weekend that will replace longtime Chancellor Angela Merkel.
Here are seven stocks on the move Friday:
(NKE) dropped 6.3% after its earnings topped estimates but sales fell short of targets. Nike also cut its guidance, citing supply-chain problems. Cowen analysts noted that the company reduced its fiscal year 2022 sales guidance by $3.3 billion because of supply chain constraints. The company now expects year-over-year sales growth in the mid single digits in percentage terms, down from a prior forecast of low double digits and Cowen reduced its price target to $180 from $196.
(NET) fell 3.9% after getting cut to Perform from Outperform at Oppenheimer.
(COIN) lost 2.4% after China said all crypto transactions would be illegal.
(MU) was little changed after JPMorgan cut its price target to $100 from $140.
(AZN) rose 1.5% after positive phase-three trial results for a cancer treatment developed with
(MRK), which rose 1%.
Write to Nicholas Jasinski at firstname.lastname@example.org