The US stock market had its biggest weekly drop in two months as investors looked at mixed company profits and thought about the possibility of future interest rate hikes before important inflation data came out the next week.
The S&P 500 index rose 0.2% on Friday but declined 1.1% for the week. The tech-heavy Nasdaq Composite lost 0.6% on the day and 2.4% over the course of five trading sessions. Both indices suffered their most substantial weekly losses since mid-December, with the Nasdaq experiencing its first weekly decline since 2023.
Jack Ablin, chief investment officer at Cresset Capital, blamed the week’s falls on an uneven set of quarterly earnings reports and concerns regarding the Federal Reserve’s strategy to continue raising interest rates.
“I believe there was a combination of concern that the Fed would be excessively tight and a desire for inflation to plummet,” he told the Financial Times. Concurrently, the earnings picture is deteriorating.
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Disney and PepsiCo did better than what experts thought they would, but Lyft, Chipotle, and Mattel did not.
US Treasury yields continued to rise as the inversion between two-year and ten-year yields reached its greatest level since 1981. The yield on 10-year notes increased by 0.06 percentage points to 3.75 percent, while the yield on rate-sensitive 2-year notes increased a little to 4.52 percent.
According to Ablin, “There has never been an inversion without a recession, and there has never been a recession without an inversion, so there is no reason to believe this will be any different.”
The dollar index, which compares the greenback to a basket of six other currencies, increased by 0.3%.
The yen rose on Friday as markets reacted to the news that scholar Kazuo Ueda is likely to be appointed the next Governor of the Bank of Japan.
As the markets thought that Ueda wouldn’t follow the ultra-dovish policies of Haruhiko Kuroda, who is leaving his job in April, the yen gained 0.1% and went up to 131.45 yen per dollar.
In a note, MUFG analysts said, “The initial reaction has been for the yen to go up, which shows uncertainty about Kazuo Ueda’s views on monetary policy and Masayoshi Amamiya’s decision not to take the position.”
In October, the yen fell to a 30-year low of 151.94, pushed by the widening gap between Japan’s loose monetary policy and rising interest rates elsewhere in the world. Since then, the currency has recovered, and Kuroda has loosened the BoJ’s strategy of keeping bond yields near zero.
Brent crude ended the day up 2.2% at $86.39 a barrel. Earlier in the day, the price went up more because Russia said it would cut its monthly oil output by about 5% in response to a price limit set by western countries.
As a result of the cuts, UK energy stocks reached their highest level in more than three years. On Friday, shares of US supermajors ConocoPhillips and ExxonMobil rose by more than 4 percent.
European stock markets went down, wiping out the gains made earlier in the week because of good news about inflation and natural gas prices.
“If you look at the market at the beginning of the year, it was robust, but now we are at the end of the bullish wave and markets need to breathe,” said Nadège Dufossé, global head of multi-asset at asset management firm Candriam. It is unlikely to be related to either good or bad news.
The European Stoxx 600 closed Friday 1% lower, while the German Dax declined 1.4%. The French CAC 40 declined by 0.8%.
In Asia, the Hang Seng index declined nearly 2%, while China’s CSI 300 index declined 0.6%.