The recent rebound in US equities appears to have paused on Friday as major indexes were little changed. Elsewhere, bond yields continued to climb and cryptocurrencies sold off.
In the afternoon, the
Dow Jones Industrial Average
was almost unchanged, after the benchmark rose 506 points on Thursday. The
also hovered around the flat line, while the
“Monday’s declines were exaggerated and we are inclined to think that the two-day rebound is also exaggerated,” wrote Tom Essaye, founder of Sevens Report Research.
U.S. indexes have gone back over 3% this week, following a massive selloff Monday through Tuesday as investors grapple with uncertainty over China Evergrande group, Federal Reserve policy and more Again.
Yields on US Treasury bonds are soaring as global demand appears to be declining for the time being. Global bond investors often pile up in higher yielding US debt when global yields remain low, driving up the price of US debt and lowering yields. This trade has reversed lately.
The 10-year bond yield climbed to 1.46% on Friday, its highest since July, but still well below the 1.75% peak in March 2021. The yield was hovering around 1.32% higher early this week. This comes after the UK 10-year gilt yield rose to 0.84%, after hovering around 0.7% earlier in the week. The rise makes US debt slightly less attractive and was boosted by the Bank of England’s hint that it could raise interest rates as early as the first quarter of 2022.
“The hawkish Bank of England meeting was the catalyst for higher yields and we know that because 10-year GILT yields jumped and pulled Treasury yields higher,” Essaye said.
The surge in long-term bond yields has dramatically reduced the valuations of growing companies, as these companies are valued on a relatively long basis. Not only did the highly technical Nasdaq fall, but the
Russell 2000 Growth Index
was down 0.3%.
Nonetheless, the decline in growth stocks was minor. One factor that investors will watch next is “the rate at which rates are rising,” said Hank Smith, head of investment strategy at Haverford Trust. “If that 10-year period hits 2% by the end of the year, either the economy is better off as it did in the second quarter or the stock markets aren’t going to take it very well.”
Even though the major indices were down, it wasn’t too bad for the stock market as there were many sectors showing gains. The
Equal Weight Invesco S&P 500
Exchange-traded funds (RSPs), which reflect the extent of stocks on the rise or fall, rose 0.1%.
Elsewhere, China gained attention again on Friday, and not just for the China Evergrande drama. Regulators across the country have issued a statement saying cryptocurrency transactions are illegal and should be banned.
“China would declare illegal crypto transactions would be disastrous for the cryptocurrency industry,” writes George Monaghan, analyst at GlobalData. “Being shut out of the world’s biggest market is terrible for any product, and it’s the strongest demonstration of China’s anti-crypto sentiment to date.”
The price of Bitcoin has fallen almost 6% to around $ 41,500. Ethereum and Litecoin each sold around 9%.
As for China Evergrande (3333.HK), the stock fell 11.6% in Hong Kong, as reports said the company did not make an $ 83 million interest payment on a bond. offshore denominated in dollars. Markets have largely dismissed Evergrande’s concerns from the start of the week as the risk of contagion appears to be manageable despite indications that China is preparing for the group’s eventual collapse.
“The Chinese government is sensitive to the need to avoid broader financial risks and would not allow the Evergrande situation to turn into a Lehman-type scenario,” writes Seema’s chief strategist for
Main global investors
Shares of Evergrande electric vehicle company Evergrande New Energy Auto (0708.HK) fell 23.4% amid reports it was behind in payments to workers and suppliers.
Overseas, Tokyo’s Nikkei 225 rose 2.1% as Japanese traders returned from vacation and hailed the bullish inflation data. Germany’s DAX fell 0.7% as the country heads to a federal election this weekend that will replace longtime Chancellor Angela Merkel.
Here are seven stocks in motion on Friday:
(NKE) fell 6.3% after its profits exceeded estimates, but sales fell short of targets. Nike also cut its forecast, citing supply chain issues.
(NET) fell 4.3% after being slashed to Perform from Outperform to Oppenheimer.
(ROKU) was down 4.3% after being demoted to equal weight versus overweight at Wells Fargo. The action was upped to Buy From Neutral at Guggenheim on Thursday.
(COIN) lost 1.8% after China said all crypto transactions would be illegal.
(MU) fell 0.1% after JPMorgan lowered its price target from $ 140 to $ 100.
(AZN) rose 1.4% after positive results from a phase three trial for treatment for cancer developed with
(MRK), which increased by 1%.
Write to Nicholas Jasinski at [email protected]