narvikk
Wall Street’s major market averages concluded Friday’s trading session relatively unchanged after the benchmark indices swung back and forth for most of the trading day. Friday’s session hinged around news of turmoil in China’s property sector and a growing perception that U.S. interest rates could stay elevated for longer than expected.
The Nasdaq Composite (COMP.IND) concluded -0.2%, while the S&P 500 (SP500) and the Dow (DJI) finished mostly even. On the week, all three indices also finished trading in negative territory.
China Evergrande (OTC:EGRNF), the world’s most indebted property developer, filed for bankruptcy in the U.S., sparking fears of the ripple effects on China’s economy that is already bucking under deflationary pressure.
Rates retreated a bit but remained near recent highs. The 10-year Treasury yield (US10Y) fell 6 basis points to 4.24% and the 2-year yield (US2Y) was down 2 basis points at 4.93%.
“After ignoring weeks of warnings intended to dampen enthusiasm, it feels like retail traders are finally getting the message,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.
“Yields are too high, stock prices have gotten ahead of themselves, earnings are flat and China is stalling,” he said. “This is not an ideal environment for unfettered bullishness.”
The recent rise in yields have also led 30-year fixed-rate mortgages to top 7% this week, with affordability concerns leading to some potential headwinds for the housing sector.
Seeking Alpha analyst Alex King of Cestrian Capital Research stated: “For at least the second time in 15 years, Mr Michael Beary was correct in his assertion that markets would be headed south. As August options expiry approached, investors loaded up on puts, dealers sold them the puts, dealers then hedged their long exposure by shorting the underlying indices, and hey presto did we have a negative feedback loop driving the market lower.”
King added: “As in-the-money put holders closed out their positions during the day, dealers began to unwind their short hedges and the subsequent covering has driven an intraday reversal to the upside. All of which means the indices are likely to head up in the next week or so, before the whole set of shenanigans begins again for Q3 opex in September, which is officially a Much Bigger Deal.”
Of the 11 S&P sectors, four ended the day in the red, led by Communication Services. Meanwhile, Energy stocks rose on the back of higher oil prices.
Among active stocks, Keysight (KEYS) was among the top losers on S&P 500 (SP500) after a disappointing earnings report. Ross Stores (ROST), on the other hand, was amongst the gainers on Nasdaq (COMP.IND) and S&P 500 (SP500) after a strong quarterly show.