The Week In Review
The stock market ended a volatile week on a defensive note. The Dow Jones Industrial Average paced the Friday slide, falling 2.1% while the S&P 500 (-1.8%) and Nasdaq Composite (-1.6%) registered slimmer losses.
Overnight, the Bank of Japan stepped up its easing efforts by announcing plans to purchase JPY300 billion worth of ETFs starting in April of 2016; however, the market scoffed at the news with Japan's Nikkei diving 1.9% while the yen climbed 1.1% against the dollar (121.27). This is noteworthy because stimulus from major central banks has been a big reason for the rally seen in global markets over the past few years. Therefore, a negative market reaction to news of more stimulus could be indicative of a sentiment change as participants begin wondering whether global central banks have reached their limits.
Investor sentiment saw little improvement as the focus shifted to the European session and the selling carried over to U.S. markets. Consequently, the first three hours of the day saw a steady slide in the key indices and they hit new lows ahead of the closing bell.
All ten sectors ended the day in negative territory with cyclical sectors showing relative weakness. The financial sector (-2.5%) spent the day behind its peers, but despite today's underperformance, the economically-sensitive sector ended the week flat. However, other growth-sensitive groups were not nearly as fortunate, posting weekly losses between 0.4% (consumer discretionary) and 3.1% (materials).
The top-weighted technology sector (-2.0%) lost 1.3% for the week after having to contend with weeklong underperformance in the shares of Apple (AAPL 105.90, -3.08). The largest stock by market cap tumbled 2.8% on Friday, ending the week lower by 6.4%.
Elsewhere, the energy sector (-1.6%) settled ahead of the broader market, but the group was knocked down from its high by an intraday reversal in crude oil. The energy component flashed a brief gain in the late morning, but followed that with a slide to a new low for the week, ending the pit session down 0.7% at $34.72/bbl.
The broad retreat that unfolded over the course of Thursday and Friday masked the fact that the S&P 500 ended the week little changed, shedding 0.3%. Five of six cyclical sectors finished the week in negative territory, but the four countercyclical groups posted weekly gains between 0.5% (consumer staples) and 2.8% (utilities), suggesting some sector rotation took place as investors tested the waters in defensively-oriented areas of the market.
Today's slide in equities was accompanied by strength in the bond market as the 10-yr note rallied overnight and held its ground during the day. The benchmark note ended near its high, pressuring its yield three basis points to 2.19%.
Investor participation was strong today, but that was largely due to quadruple witching. As a result, more than two billion shares changed hands at the NYSE floor.
Market participants will not receive any economic data on Monday.
Nasdaq Composite +4.0% YTD
S&P 500 -2.6% YTD
Dow Jones Industrial Average -3.9% YTD
Russell 2000 -6.8% YTD
Week in Review: Stocks Gyrate as Fed Hikes Rates
Equities began the trading week on a higher note, but not before showing some late morning volatility. The S&P 500 climbed 0.5% after briefly dipping below the 2,000 mark while the Nasdaq Composite (+0.4%) underperformed slightly. Equity indices slumped out of the gate with cyclical sectors fueling the early weakness. That selling was congruent with a retreat in the oil market, but a reversal in crude futures helped halt the slide in equities. The stock market spent the afternoon near its flat line, rallying to a fresh high during the final 15 minutes of the session. Crude oil was in focus throughout the day as the energy component probed the $34.60/bbl area in overnight action before rallying to end the day higher by 2.0% at $36.34/bbl. The late morning reversal underpinned the energy sector (+0.8%), which rebounded from last week's 6.6% dive. The energy sector climbed into the green with relative ease, but the same could not be said for most of the remaining cyclical groups. The technology sector (+0.6%) was an exception as the top-weighted group climbed ahead of the broader market during the afternoon after showing relative weakness at the start. That early weakness could be traced back to the shares of Apple (AAPL 112.48, -0.70) as the tech giant struggled after Morgan Stanley lowered its iPhone sales forecast. Apple settled lower by 0.6% after being down more than 2.0% in the early going.
The stock market enjoyed a broad-based rally on Tuesday, which lifted the S&P 500 (+1.1%) back above its 100-day moving average (2,030). The benchmark index extended its weekly gain to 1.5% ahead of Wednesday's FOMC announcement, which is widely expected to call for the first fed funds rate hike since 2006. Overnight, the early portion of the Asian session was highlighted by some caution among investors, but the overall sentiment began improving once the attention shifted to Europe. Accordingly, markets in France (+3.2%), Germany (+3.1%), and the UK (+2.5%) soared amid broad support. Contributing to the upbeat sentiment was a rally in crude oil as the energy component climbed despite greenback strength that sent the Dollar Index (98.22, +0.62) higher by 0.6%. As for oil, WTI crude surged 2.7% to $37.32/bbl, taking the energy sector (+2.9%) along for the ride. The growth-sensitive energy sector settled atop the leaderboard, but despite the surge, the sector is still down 7.8% for the month. Similarly, the financial sector (+2.4%) was also at the forefront of the Tuesday advance after showing relative weakness as of late. The economically-sensitive group narrowed its December loss to 2.0% versus a 1.8% month-to-date decline for the S&P 500.
Equity indices ended the midweek session on a higher note with the S&P 500 climbing 1.5%. The benchmark index shrugged off the first fed funds rate hike in nine years, reclaiming its 50- (2,060) and 200-day moving averages (2,062) in the process. The key indices spiked at the start of the trading day, but the first half of the session featured a slow drip from opening highs as investors employed some caution ahead of the FOMC rate announcement; however, a rally to new highs unfolded during the late afternoon. The Federal Reserve lived up to expectations, calling for a 25-basis point hike to the federal funds target range, which had been stuck in the 0.00-0.25% range for exactly seven years. Interestingly, the rate hike did not stop the committee from slightly lowering its core PCE inflation outlook for 2016 to 1.5-1.7% from 1.5-1.8% that had been expected in September. The Dollar Index (98.35, +0.13) displayed some volatility, but ended in the green. The index saw some pressure as Fed Chair Janet Yellen addressed the media, stressing the Fed's intention to stick to a gradual tightening path. Ms. Yellen acknowledged that the rate hike is taking place while inflation is well below the Fed's 2.0% target, but the Fed Chair believes that inflation will return to the 2.0% target once transitory factors fade away.
The market stumbled on Thursday, erasing its entire post-Fed advance. The S&P 500 lost 1.5%, falling below its 50- and 200-day moving averages (2,062), while the Nasdaq Composite (-1.4%) settled just a step ahead. Equity indices held slim gains at the open after the overnight session saw a broad rally in Japan (+1.6%), France (+1.1%), and Germany (+2.6%); however, that bullish sentiment faded in a flash, pulling stocks lower through the first two hours of the session. The key indices ranged near their morning lows into the late afternoon, hitting new lows into the close. The Thursday retreat was not a huge surprise considering a higher fed funds rate will translate into increased borrowing costs. Furthermore, the resulting dollar strength is expected to be a negative for U.S.-based companies that conduct a large portion of their activities overseas. Fittingly, the greenback was on the rise, climbing 0.7% against the euro (1.0808) while the yen (122.50) resisted some of the pressure, but still slid 0.4% against the dollar. As a result, the Dollar Index (99.23, +0.65) gained 0.7%, returning into the neighborhood of this year's high (100.51).