Company / Analytics

Week 33 in Brief

North America

• U.S. equities closed higher Friday, despite ending the week with losses driven by fears over the spread of the coronavirus delta variant, the imminent tapering of Federal Reserve bond-buying, and China’s restrictions on its economy.
• Stocks recovered Friday across the board, with technology stocks leading the S&P 500 while the energy sector catching bid after a withering week due to a slump in oil prices.

How did the major indices perform?

• The Dow Jones Industrial Average rose 225.96 points, or 0.7%, to 35,120.08.
• The S&P 500 climbed 35.87 points, 0.8%, to 4,441.67.
• The Nasdaq Composite advanced 172.87 points, or 1.2%, to 14,714.66.
• For the week, the S&P 500 slid 0.6%, the Dow declined 1.1% and the Nasdaq Composite lost 0.7%, while the small-cap Russell 2000 index fell 2.5%.
• On Thursday, major markets ended mixed, with the S&P 500 and Nasdaq Composite registering small gains, while the small-cap Russell 2000 ended 1.2% lower.

What drove the market?

• Buying the Dip: Investors were mostly buying the dop this week, scooping up shares of information technology and turning to embattled energy and financials, among the worst weekly performers. Information technology and communication services are among the areas leading the market in Friday’s trading, similar to last year when COVID-19 was “raging” and “stay-at-home stocks” topped the charts.
• The energy sector fell 7.3% this week, while financials were off 2.3%, FactSet data show. Consumer staples were up 0.4% for the week, healthcare climbed 1.8%, and utilities gained 1.8%, which are largely defensive plays. Technology, meanwhile, erased its weekly slide.
• Coronavirus worries: Analysts at Capital Economics noted that the spread of the Delta variant of Covid-19 continues to weigh on prices, particularly in the commodity complex. Indeed, commodity prices mostly fell this week on the back of a stronger U.S. dollar as well as mounting concerns over the demand outlook. All week, concerns about a sharp rise in U.S. COVID cases, hospitalizations, and deaths have tamped down bullishness, as the daily average of new U.S. cases over the past seven days rose to 143,827 as of Thursday, up 44% from two weeks ago and the most since Feb. 1, according to a New York Times tracker.
• Fed Tampering: The change in the complexion of the viral spread is causing some Fed members to rethink tapering strategies. For instance, Dallas Federal Reserve President Rob Kaplan said he may reconsider his call for the central bank to quickly start to taper its monthly buying of $120 billion in Treasury and mortgage-backed securities if it looks like the spread of the coronavirus delta variant is slowing economic growth. Noting that the delta variant has caused him to have an open mind about the path of monetary policy, Kaplan called the delta variant “the big imponderable” in the outlook. His remarks likely contributed to the market’s rise Friday. Just a couple of days ago, the release of the Fed policy meeting minutes had indicated “consensus to begin tapering this year,” he said, and some investors may now see the possibility that the central bank could “adjust its thinking.”
• Volatility: The Cboe Volatility Index, often referred to by its ticker symbol VIX, a measure of implied stock market volatility, jumped in the early hours Friday, while the U.S. dollar reached a fresh nine-month high. The VIX was about 15% lower around the end of trading Friday, according to FactSet data.

Which stocks were in focus Friday?

• Shares of Mudrick Capital Acquisition Corp. II fell 2.8% to close at $9.83 after the special-purpose acquisition company (SPAC) said the merger agreement that would have taken The Topps Company public has been terminated “by mutual agreement.
• Shares of Deere & Co. dropped 2.1% to close at $351.4, after the construction, agriculture, and turf care equipment maker reported fiscal third-quarter profit that more than doubled and was well above expectations and raised its full-year net income outlook.
• Foot Locker Inc. shares jumped 7.3% to close the week at $58.34 after the athletic retailer reported second-quarter earnings that far exceeded expectations.
• LumiraDx Ltd. and SPAC CA Healthcare Acquisition Corp. said Friday the value of their merger deal to take LumiraDx public has been cut by 40%, citing “various considerations,” including the recent market environment for publicly traded diagnostic companies and declines in COVID-19 testing volumes.

How did the European markets perform?

• European stocks closed higher Friday, but sharply lower for the week, as traders monitored issues such as global monetary policy, the delta Covid variant, and China’s tech crackdown.
• The pan-European Stoxx 600 ended the Friday session up 0.3% with retail stocks leading the gains. The index finished down 1.5% for the week, in what was its worst weekly performance since February, according to Reuters data.
• The German DAX closed up 0.17% on Friday after a bigger-than-expected jump in producer prices, which saw a 1.9% increase month-on-month in July.
• In individual stocks, Marks & Spencer topped gains in early deals, up by 14%, after the retailer lifted its profit outlook. Fellow supermarket Morrisons was also among the top performers, up by 4.5%, after announcing it had approved a takeover offer of £7 billion ($9.5 billion) from U.S.-based private equity group Clayton, Dubilier & Rice.
• London’s FTSE 100 rose 0.4% but saw a weekly decline of 1.8% after disappointing retail sales in Britain. British retail sales disappointed dropped 2.5% in July from the previous month, according to the Office for National Statistics. Economists argue that rainy weather and the global chip shortage had an impact on how British consumers behaved last month.

How did Asian markets perform?

• In Asia, Hong Kong’s Hang Seng suffered another rough session, falling 1.8%, with the index now 19% below its February high on the continued regulatory crackdown in China. China on Friday passed a strict data privacy law that is due to take effect in November.
• More than $560 billion in market value has been wiped off Hong Kong and mainland China exchanges in a week as funds capitulate out of once-favored stocks, unsure which sectors regulators will target next.
• Meanwhile, the Shanghai Composite shed 1.1% and Japan’s Nikkei 225 declined 1%.
• China left its benchmark lending rate unchanged, and expectations remain that the Chinese government will boost stimulus to counter a slowdown in factory output and retail sales growth.

Commodities and Bonds

• The yield on the 10-year Treasury note rose almost 2 basis points to 1.259% Friday but was down 3.8 basis points for the week.
• Oil prices closed out their biggest week of losses in more than nine months and for the seventh straight day in a row Friday, as investors sold futures in anticipation of weakened fuel demand worldwide due to a surge in COVID-19 cases.
• Brent crude fell 8% on the week, settling down $1.27, or 1.9%, to $65.18 a barrel, its lowest since April and down about 8% for the week. U.S. West Texas Intermediate (WTI) crude for September settled down $1.37, or 2.2%, to $62.32 a barrel on Friday, to lose more than 9% for the week.
• Gold futures rose 0.05% to settle at $1,784 an ounce.

Currencies

• The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down 0.1% and traded around a nine-month high.
• British Sterling traded lower against the U.S. dollar at $1.36 following the data release.
• For the week, sterling was down almost 1.8% and set for its biggest fall against the greenback in two months.

Next Week

• The earnings season continues with reports from Best Buy, Dick’s Sporting Goods, & Nordstrom expected.
• Investors will also parse economic reports from around the world, including the housing report and Fed’s Jackson Hole symposium in the US, and the EU’s EA Markit Manufacturing PMI Flash report for August.