U.S. stock indexes were headed lower early Friday, with the indexes trying to avoid a three-session weekly losing streak, amid uncertainty about a fresh round of fiscal stimulus from Washington lawmakers and concerns about tensions between the U.S. and China.
The day’s trading action marks quadruple witching, which refers to the simultaneous expiration of single-stock options, single-stock futures, and stock-index options and stock-index futures, which has traditionally been associated with some intraday volatility.
How are equity benchmarks performing?
The Dow Jones Industrial Average (DJIA) was trading 70 points, or 0.3%, lower at 27,831, the S&P 500 index (SPX) was off 19 points, or 0.6%, at around 3,339, but swinging between slight gains and losses in early trade near its 50-day moving average at 3,343.34. The Nasdaq Composite Index (COMP) was trading 79 points, or 0.7%, at about 10,831.
On Thursday, the Dow closed 130.40 points, or 0.4%, lower at 27,901.98, snapping a four-session win streak. The S&P 500 index fell 28.48 points to end at 3,357.01, a decline of 0.8%, following a momentary dip below its 50-day moving average at around 3,339. The Nasdaq Composite retreated 140.19 points, or 1.3%, to 10,910.28.
For the week, the Dow is on pace for a weekly gain of 0.5%, while the S&P 500 is aiming for a rise of 0.2% and the Nasdaq Composite was looking at a 0.4% weekly gain.
What’s driving the market?
Market participants were experiencing bumpy trade on Friday as gains for the week were in danger in trading around the expiration of futures and options contracts.
Wrangling by investors over the long-term impact of the Federal Reserve’s policy update on Wednesday, in which the central bank indicated that the economic recovery could be a long one, and that it wouldn’t be inclined to lift interest rates for at least another three or four years, is still rippling through the market.
The central bank’s policy update on Wednesday marked its first since it outlined its average-inflation target strategy to avoid falling into the quicksand of low inflation by keeping interest rates close to 0% until the labor market achieves maximum employment and inflation has risen to its 2% target “and is on track to moderately exceed 2% for some time.”
On Friday, St. Louis Fed President James Bullard during a speech, suggested that there are a number of scenarios that might result in stubbornly low inflation picking up steam toward the central bank’s former annual 2% target, including supply bottlenecks to surging deficits.
Bullard’s comments come after Minneapolis Federal Reserve President Neel Kashkari on Friday, described talk of a surge in inflation as “ghost stories,” in an essay posted on his regional bank’s website, taking dead aim at the Fed’s yearslong struggle in achieving 2% inflation. Kashkari was one of two dissenters in the Fed’s latest policy action. Dallas Fed President Rob Kaplan favored the Fed’s prior guidance
In a separate interview Friday, Atlanta Fed President Raphael Bostic said the COVID-19 pandemic has generated “a lot of noise” in the inflation data.
Meanwhile, investors continue to look for progress on fiscal stimulus talks from Washington lawmakers that is considered by many crucial to markets sustaining current gains and advancing further amid the economic wreckage created by the COVID-19 pandemic.
Reports indicate that Democrats and Republicans remain at an impasse over another round of coronavirus relief despite President Donald Trump’s urging for a deal to be struck soon. Lawmakers, however, planned to introduce a bill midday Friday that would see the government funded through mid-December.
House Democrats had passed a $3.5 trillion relief bill in May, but more recently in negotiations with White House officials said they would accept a $2.2 trillion deal, the Wall Street Journal reported.
House Speaker Nancy Pelosi said Democrats could push for more than their previous offer of $2.2 trillion but isn’t willing to advocate for anything less than her less proposal.
“When we go into a negotiation it’s about the allocation of the resources,” she was quoted as saying on Thursday by The Hill in a reporter briefing. “But it’s hard to see how we can go any lower when you only have greater needs.”
Read: Coronavirus tally: Global cases of COVID-19 top 30 million, 946,490 deaths and U.S. death toll close to 200,000
Meanwhile, the Fed is embarking on a second round of stress tests for the banking sector amid the coronavirus epidemic and is reportedly considering extending limits to dividend payments and share buybacks on the industry.
On the geopolitical front, the U.S. Commerce Department said Friday it is prohibiting transactions involving Tencent’s WeChat and Bytedance’s TikTok. The order makes no mention of the Oracle Corp. (ORCL) deal with TikTok but said “the President has provided until November 12 for the national security concerns posed by TikTok to be resolved.” The news highlights lingering Sino-American testiness.
Separately, the University of Michigan said the preliminary reading of its U.S. consumer sentiment index in September was 78.9, up from 74.1 in the prior month, better than average estimates from economists polled by MarketWatch, who expected a reading of 75.9.
In other economic reports, the U.S. current-account deficit, a measure of the nation’s debt to other countries, widened sharply in the second quarter. The current-account deficit widened to $170 billion from a revised $111.5 billion in the first quarter.
Looking ahead, investors are watching for a report on consumer sentiment that is due at 10 a.m. Eastern Time. Atlanta Fed President Raphael Bostic speaks at 12 p.m.
Which stocks are in focus?
- XL Fleet, a provider of electric vehicle technology, said Friday it has agreed to merge with Pivotal Investment Corporation II (PIC) , a special purpose acquisition corporation, or SPAC, in a deal with a pro forma enterprise value of about $1 billion. Shares of PIC were up 14%.
- Shares of Swiss-based Roche Holding AG (CH:ROG) were in focus on Friday after the drug maker said hospitalized COVID-19 patients taking rheumatoid arthritis drug Actemra were less likely to need mechanical ventilation than those receiving placebo. U.S. listed Roche shares were p 1.2%.
- Shares of U.S. Steel Corp. (X) rose 8.2% Friday, after the steel producer provided an upbeat third-quarter outlook, including a “significantly better” performance expected for its flat-rolled business and signs that the tubular business has bottomed.
- Shares of Tesla Inc. (TSLA) were up 3.7% higher in early Friday trade.
- Oracle shares were down 0.4% amid the TikTok developments.
How are other markets faring?
The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) fell 1.4 basis points to 0.67%, the day after the Fed’s decision. Bond prices move inversely to yields.
The ICE U.S. Dollar Index (DXY) which tracks the performance of the greenback against its major rivals, was off 0.1% at 92.913.
Gold futures (GCZ20) headed 0.3% higher on Comex to $1,957.10 an ounce. Futures for the U.S. crude oil benchmark (CL) picked up 5 cents, or less than 0.1% to reach $41.02 a barrel as OPEC+ emphasized the importance of complying with output cuts during their monthly meeting on Thursday.
Stoxx Europe 600 index (XX:SXXP) trades down 0.4%, and the U.K.’s benchmark FTSE 100 (UK:UKX) headed 0.5% lower on Friday. In Asia, Hong Kong’s Hang Seng Index (HK:HSI) closed 0.5% higher and the Shanghai Composite (CN:SHCOMP) lost advanced 2.1%. Japan’s Nikkei (JP:NIK) inched up 0.2%.
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