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MARKET SNAPSHOT

The Dow and S&P 500 index were struggling to overcome a sharp decline in blue-chip component Nike Inc. on Friday, on the heels of two strong sessions for the broader equity market which recovered most of the week’s losses.

How are stock benchmarks trading?

  • The Dow Jones Industrial Average traded 3 points, or less than 0.1%, higher at 34,765.
  • The S&P 500 traded 3 points, or 0.1% higher at at 4,452.
  • The Nasdaq Composite Index declined 42 points, or 0.3%, to reach 15,010.

On Thursday, the Dow rose 507 points, or 1.48%, to 34765, its biggest two-day point and percentage gain since Mar. 8, 2021, according to Dow Jones data. The S&P 500 increased 53 points, or 1.21%, to 4449, and the Nasdaq Composite gained 155 points, or 1.04%, to 15052.

What’s driving the market?

Markets were drifting higher but held in check by selling in technology shares on Friday, as bond yields climbed, putting pressure on the discount rate used for equity valuations and particularly impact technology stocks with rapid earnings growth assumptions built into their valuations.

A crackdown on bitcoin by China Friday also hurt some technology stocks. Crypto-exchange Coinbase fell as did retail trading platform Robinhood which last quarter made more than half of its transaction-related revenue from crypto.

“Equity markets continue to reflect a tug of war between bulls and bears, with markets heading for a mixed week,” wrote Mark Hackett, chief of investment research at Nationwide.

Friday’s lackluster action comes after two strong days of gains for Wall Street stocks following the Federal Reserve’s policy meeting on Wednesday, as investors reacted to indications by the central bank that start of the tapering of its bond purchases might be near.

Indeed, Cleveland Federal Reserve President Loretta Mester said she backed starting tapering of the Fed’s monthly purchases of Treasurys and mortgage-backed securities starting in November, with an eye toward ending it in the middle of 2022. Mester isn’t presently a voting member of the Federal Open Market Committee, but she will be one next year.

Treasury yields have started to mount a steady climb higher in the wake of the Fed’s policy statement on Wednesday, with the benchmark 10-year Treasury note rate at 1.44% on Friday.

“Stock and bond yields have begun to rise in unison, signaling renewed growth optimism. The 10-year Treasury yield surged to a highest level in nearly three months, reacting to taper chatter and the prospect for fed-funds rate hikes next year following the [Federal Open Market Committee] meeting,” Hackett wrote.

Investors continue to watch for the latest on China’s Evergrande, a property developer that helped to spark a rout on Monday, amid fears over global contagion from the highly leveraged company. However, the market appears to be betting that China will help limit the damage from the developer.

As of Thursday, bondholders still hadn’t received any money from Evergrande which was due to make a $83.5 million interest payment on dollar bonds, The Wall Street Journal reported, citing sources.

The company has a 30-day grace period to make a payment, but barring that, Evergrande could trigger a default. Those shares fell 12% in Hong Kong on Friday. Elsewhere, media reports said Friday that the company’s electric-vehicle unit hadn’t paid suppliers in months, with employees also receiving no salary for September.

Meanwhile, House Speaker Nancy Pelosi on Wednesday vowed to not let government funding expire next week, assuaging some worries about investors that politics could lead to a partial shutdown of the government and a default in U.S. debt that could roil markets.

Separately, on Friday, President Joe Biden urged those eligible to “go get the booster,” in a morning address, following an unusual move by the head of the Centers for Disease Control and Prevention, who overruled a panel of advisers’ recommendation that booster doses of a COVID-19 vaccine be offered only to people over 65 and those with weakened immune systems, advocating for them to also be offered to front line workers, including nurses, teachers and supermarket staff.

On the data front, U.S. new-home sales increased 1.5% to an annual rate of 740,000, the government said Friday. The figure equates to how many homes would be sold over a yearlong period if the same number were bought in each month based on the rate of sales in July. Compared with a year ago, sales were down 24%. The median forecast of economists polled by MarketWatch was that new home sales would come in at an annual rate of 720,000 for August. 

Which companies are in focus?

  • Shares of Nike Inc. fell 6.5% after the sportswear maker reported quarterly sales that fell short of Wall Street expectations, and said wages and overhead expenses weighed on revenue.
  • Costco Wholesale Corp. shares rose 1.5% as the retailer topped $60 billion in net sales in a single quarter for the first time, hit $5 billion in annual profit and grew at its fastest pace in more than 20 years.
  • Shares of Carnival CorpCCL rose after the cruise operator provided an update on its third quarter
  • Deutsche Bank analyst Michael Linenberg has launched a “short-term catalyst call buy” on Delta Air Lines Inc.‘s stock DAL, +1.84% Friday, saying he believes the underperformance so far this year will flip to outperformance in the coming months. 
  • Shares of Roku Inc. are down Friday after Wells Fargo analyst Steven Cahall downgraded the stock to equal weight from overweight. 

How are other assets trading?

  • The yield on the 10-year Treasury note rose 4.5 basis points to around 1.45%.
  • The ICE U.S. Dollar Index a measure of the currency against a basket of rivals, fell 0.2% to 93.27, but was up less than 0.1% on the week.
  • Oil futures were climbing, with the U.S. benchmark trading at $73.93 a barrel for a gain of 0.9% and a weekly rise of 2.7% so far. Gold futures rose 0.1% to around $1,751 an ounce, but was relatively flat in the week to date.
  • In Asia, Hong Kong’s Hang Seng Index dropped 1.3% and logged a weekly decline of 2.9%, while China’s CSI 300 index finished virtually unchanged and logged a 0.1% weekly fall. The Nikkei 225 index jumped 2% on the session, helping to pare a weekly decline to 0.8%.
  • In Europe, the Stoxx Europe 600 closed down 0.9% but notched a 0.3% weekly gain, while the FTSE 100 index closed 0.4% lower but booked a 1.3% weekly advance.

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