U.S. stocks slipped on Friday, with Wall Street’s benchmark gauge on track for its worst week since early March. Equities have stalled in the last few days as the rally has taken a breather.
By mid-day, the tech-heavy Nasdaq Composite (COMP.IND) had retreated 0.96% to 13,499.15 points, while the S&P 500 (SP500) was lower by 0.66% to 4,353.02 points. The blue-chip Dow (DJI) fell 0.54% to 33,764.82 points.
On a weekly basis, the S&P was down 1.29%, the Nasdaq was down 1.39% while the Dow was down 1.56%.
All 11 S&P sectors lost ground, led by growth areas. Technology was down more than 1%.
Treasury yields slipped as investors snapped up bonds. The longer-end 10-year yield (US10Y) was down 6 basis points to 3.74% while the 2-year yield (US2Y) – which is more rate-sensitive to the Fed’s moves – was down 3 basis points to 4.77%. The dollar index (DXY) was higher by 0.54% to 102.94.
U.S. stocks have faltered this week on hawkish signals from central banks at home and abroad. Federal Reserve chair Jerome Powell over the last two days delivered his testimony on the semi-annual monetary policy report to lawmakers. He reiterated expectations for more rate hikes this year. A host of interest rate increases by central banks in UK, Norway and Turkey have also added to overall rate concerns.
Ryan Belanger, founder and managing principal at Claro Advisors, weighed in with his thoughts on why the rally has faltered: “While we understand that investors are tired of the bear market, we fear that investors are putting too much faith in this recent stock market rally. At 20 times forward earnings, the S&P 500 is again trading at a rich premium to historic market multiples, buoyed by confidence that the Federal Reserve is done with rate hikes and a clearer picture of what a soft landing might look like. This confidence is misaligned.”
“The market is awash in bullish sentiment, a sudden pivot from the last 18-months’ worth of bearish spirits … Investors are prematurely acting as though the inflation battle has been won … We believe it is wise for investors to take profits in stocks thanks to this year’s rally and consider reinvesting those proceeds into high quality bonds which are offering very attractive yields,” Belanger added.
Friday’s economic calendar was quite light. June S&P Global PMI numbers were on the docket. Manufacturing PMI slid to 46.3 compared to the forecasted 48.5 and the services PMI came in at 54.1 versus the expected 54 figure.
“The question remains how far central banks can credibly take the tightening, with record curve inversions pointing to stretched levels,” ING said. “Macro indicators such as, in the US, the Conference Board’s Leading Index are also signaling recession. Today’s release of the June PMI flash estimates could also serve to highlight the growing discrepancy between the central banks’ own optimistic macro outlooks and the softening data indicators, but they alone are unlikely to resolve the disconnect.”
Turning to active stocks, CarMax (KMX) was the top percentage gainer on the S&P 500 (SP500) after reporting better-than-expected quarterly results.
Virgin Galactic (SPCE) slumped after filing to sell $400M in stock.