MW U.S. stocks close higher in Nasdaq-led rally, but still see losses for the week
By Christine Idzelis and Mark DeCambre
U.S. stock indexes closed higher Friday, but still ended with losses for the week on fears over the spread of the coronavirus delta variant, the imminent tapering of Federal Reserve bond buying, and China's restrictions on its economy.
Friday's recovery was broad, with technology stocks among the leaders in the S&P 500 and even energy catching a bid after a withering week for the sector as oil prices slumped.
How did benchmarks trade?
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.
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%.
What drove markets?
Buy the dip for the week was in play on Friday, with investors scooping up shares of information technology and turning to embattled energy and financials , among the worst weekly performers.
"The tidal wave of liquidity is so powerful, so vast, that the buy-the-dips mentality is the dominant force right now," said David Donabedian, chief investment officer of CIBC Private Wealth Management, in a phone interview Friday. Information technology and communication services are among the areas leading the market in Friday's trading, he said, 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.
"It's a little difficult to get too excited about equities," particularly U.S. large-cap, as valuations are "pretty full," said Michael Reynolds, vice president of investment strategy at wealth-management firm Glenmede, in a phone interview Friday. But Glenmede still has an appetite for risk, he said, targeting areas such as small-cap and international stocks as well as real estate investment trusts.
Researchers at Capital Economics said that delta's spread continues to weigh on prices, particularly in the commodity complex. "Commodity prices mostly fell this week on the back of a stronger U.S. dollar as well as mounting concerns over the demand outlook," Capital Economics economists wrote in a Friday note.
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 .
The change in the complexion of the viral spread is causing some Fed members to rethink tapering strategies.
Indeed, 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.
"It is in all of our interest to slow the spread, and right now we're in a negative trend," Kaplan said in an interview with Fox Business Network on Friday. Kaplan said the delta variant has caused him to have an open mind about the path of monetary policy. He called the delta variant "the big imponderable" in the outlook.
The remarks from Kaplan, who is a "more hawkish" Fed official, may be contributing to the market's rise Friday, according to Donabedian. 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."
"What we've been telling clients is the first half of the year was nirvana," with above-average gains and "very low market volatility," said Baltimore-based Donabedian of CIBC Private Wealth. "We're in a bull market, but it's going to be a tougher slog over the second half of the year."
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 companies were in focus?
How did other assets fare?
--Steve Goldstein contributed to the report.
-Christine Idzelis
$(END)$ Dow Jones Newswires
August 21, 2021 10:34 ET (14:34 GMT)
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