Dow drops 300 points as options expiration unleash volatility in stocks

US stocks traded lower Friday as more than $2 trillion in stock-linked options expired as investors digested more aggressive comment from the Federal Reserve.

How are stock index futures traded?
  • The Dow Jones Industrial Average DJIA,
    -0.82%
    fell 302.06 points, or 0.9%, to 33,695.

  • The S&P 500 SPX,
    -1.25%
    fell 57 points, or 1.4%, to 4,226.

  • The Nasdaq Composite fell 264 points, or 2%, to 12,701.

On Thursday, the S&P 500 SPX,
-1.25%
rose 0.2% to 4,283.74, the Dow Industrials DJIA,
-0.82%
rose less than 0.1% to close at 33,999.04 and the Nasdaq Composite COMP,
-1.98%
won 0.2% to finish at 12,965.34.

What drives markets?

Friday will not include key US economic data, forcing investors to deal with the monthly expiration of more than $2 trillion in stock and index options and comments from Federal Reserve officials.

To see: Stock Rally Faces Major Challenge at S&P 500’s 200-Day Moving Average

Treasury yields climbed Friday as investors returned to believe that the Fed’s big rate hikes were not over yet, with the 10-year TMUBMUSD10Y yielding the same rate.
2.985%
up 11 basis points to 2.987% and the two-year TMUBMUSD02Y,
3.254%
an increase of 4.3 basis points to 3.254%.

Interest-rate sensitive technology stocks seemed poised to take the brunt, with the Nasdaq leading the market lower. The tech-heavy index is heading for a weekly decline of 0.6%, while the S&P 500 is clinging to positive territory after both indices ended last week with a fourth consecutive win, their longest weekly streak since November 2021.

Meanwhile, investors also estimate the increasing likelihood that the Federal Reserve will raise interest rates by 75 basis points at its meeting in September.

St. Louis Fed President James Bullard told The Wall Street Journal on Thursday that he would be “nouncing” a 75 basis point increase in September. Investors also heard more cautious comments from Kansas City Fed President Esther George, who said how quickly the increases will happen is still up for debate.

On Friday morning, Richmond Fed president Tom Barkin said that while the Fed will “do whatever it takes” to push inflation back toward its 2% target, “getting back to normal will not cause a catastrophic decline in inflation.” economic activity is required,” Bloomberg reported.

Opinion: The Fed is not getting cold feet over inflation wrestling, so stop misinterpreting the minutes

As US retailers finish reporting their second quarter results, investors are turning their attention to what Fed Chair Jerome Powell will say next week at the Fed’s annual economic symposium in Jackson Hole, Wyo.

“I think everyone’s just waiting for Jackson Hole, so I think there’s going to be a lot of speculation about what Powell is going to say in the next five days,” said Brad Conger, deputy chief investment officer at Pennsylvania-based Hirtle Callaghan. Co., which oversees approximately $20 billion in assets, primarily on behalf of university endowments.

The picture from US economic data this week was mixed as retail sales were flat, while Wall Street received disappointing results from Target TGT,
-2.39%
and Kohl’s KSS,
-3.48%.
But Thursday released data showing weekly jobless claims fell by 2,000 to 250,000, with no signs of mass layoffs.

Which companies are central?
  • Bed, Bath & Beyond Inc.
    BBB,
    -39.57%
    shares fell 41.2% after investor Ryan Cohen confirmed he sold his entire stake in the retailer and made a profit of more than $58 million.

  • Shares of Deere & Co.
    THE,
    -1.36%
    fell 2.3% after the tractor manufacturer reported fiscal third quarter profit that beat expectations due to higher costs and production inefficiencies, but revenues beat forecasts.

  • Shares of Foot Locker Inc. FL,
    +21.61%
    rose 20% before the market opened on Friday, boosted by the sneaker retailer’s second-quarter results.

  • Shares of Weber Inc.
    WEBR,
    -10.90%
    fell Friday after rising above $10 a share for the first time since June the day before.

How are other assets traded?
  • Crude oil prices fell in line with stock futures. West Texas Intermediate raw CL.1,
    +0.54%
    for September, 22 cents, or 0.3%, fell to $90.34 a barrel, while Brent BRN00,
    +0.19%
    was slightly lower at $96.53 a barrel.

  • The US dollar index DXY,
    +0.57%
    climbed 0.6% to 108.2 as investors sought out assets.

  • The price of gold fell, with December futures for the precious metal GCZ22,
    -0.50%
    down $9, or 0.5%, to $1,762.50 an ounce.

  • Bitcoin BTCUSD,
    -8.84%
    fell 8.2% to $21,337 and was headed for what could be its biggest loss in two months.

  • Japanese Nikkei 225 NIY00,
    -1.25%
    ended Friday marginally lower at 28,930.33, as Hong Kong’s Hang Seng Index, HSI,
    +0.05%
    rose 0.1% to 19,773.03. The Euro Stoxx 600 FXXP00,
    -0.84%
    fell 0.8%, while the UK’s FTSE 100 UKX,
    +0.01%
    advanced 0.1%.

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