Technology stocks led the broader market lower Friday as government bond yields spiked after a few Federal Reserve officials weighed in on rate hikes.
The 10-Year Treasury Yield rose to 2.998% – the highest level since late July – before reaching 9.4 basis points at 2.974%. (A basis point is one-hundredth of a percentage point.)
This came after St. Louis Fed President James Bullard — a current voting member of the Federal Open Market Committee (FOMC) — in an interview with The Wall Street Journal Thursday he “tended to” [raising rates] 75 basis points” at the central bank meeting in September. “I think we have relatively good data on the economy, and we have very high inflation, so I think it would make sense to raise the key rate further and in restrictive territory,” Bullard added.
And this morning, Richmond Fed president Thomas Barkin said at an event in Maryland that the central bank will “do whatever it takes” to bring inflation back to its 2% target. Barkin is not a voting member of the FOMC this year.
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Monthly options also played a part in today’s volatile price action. Expiration of options can increase liquidity in the market, says Souhow Yao, an analyst at Susquehanna Financial Group, and can exacerbate price movements in the underlying stocks or indices. Today, more than $2 trillion worth of options contracts have expired.
Technology (-1.8%) was one of the weaker sectors in today’s sell-off, pushing the Nasdaq composite decreased by 2.0% to 12,705. The S&P 500 Index finished 1.3% lower at 4,228, and the Dow Jones Industrial Average returned 0.9% to 33,706. All three indices closed lower on the week, with the Nasdaq and S&P 500 breaking their weekly profit streaks.
Other news at the fair today:
- The small cap Russell 2000 fell 2.2% to 1,957.
- US crude futures rose 0.3% to $90.77 a barrel, but still ended the week at 1.4%.
- gold futures returned 0.5% on the day to finish at $1,762.90 an ounce. For the week, the gold price fell 2.9%.
- Bitcoin fell 8.6% to $21,349.47. (Bitcoin trades 24 hours a day; prices quoted here are from 4pm) “Weakness has seeped into the crypto sphere as speculators withdrew from highly risky assets expecting higher interest rates to last much longer,” says Susannah Streeter, senior investment and market analyst with UK-based financial firm Hargreaves Lansdown.
- Thursday’s confirmation that Ryan Cohen, GameStop (GME) chairman of the board and tough (CHWY) founder, sold his entire stake in Bed Bath & More (BBBY) sent stocks into another downward spiral today. A regulatory filing showed that Cohen had unloaded his entire $8.1 million stake at prices ranging from $18.68 per share to $29.22 per share, and sold all of his call options. BBBY shares plunged 40.5% in response.
- Foot Locker (FL) rose 20.1% after the athletic apparel retailer reported gains. The company posted second-quarter earnings per share of $1.10 per share, beating the consensus estimate by 30 cents. Revenue of $2.1 billion was in line with expectations. The company also announced a C-suite shocker that caused BofA Securities analyst Lorraine Hutchinson to upgrade the stock to Neutral from Underperform (the equivalents of Hold and Sell, respectively. Johnson will retire from the company and be replaced). by former Ulta (ULTA) CEO Mary Dillon,” said the analyst. “This is a statement-changing move in our view given Dillon’s reputation in the industry. She is a highly respected consumer executive who served as CEO of Ulta Beauty for 8 years through June 2021. While at the helm of Ulta, Dillon developed a best-in-class loyalty program, sales grew by a CAGR of 16%, and inventory tripled.”
Stay prepared with your portfolio choices
Wall Street could take on more color in the Fed’s monetary policy outlook next week, when the central bank hosts its annual Jackson Hole symposium. “A major source of friction between market-central bank communications has been how long interest rates should remain relatively high to contain inflation,” said Douglas Porter, chief economist at BMO Capital Markets. “Next week’s main event may focus on this issue,” he adds. “This year’s theme for the symposium is ‘Reassessing Constraints on the Economy and Policy’. Continued strength in underlying inflation would be a major constraint on both the economy and policy space.”
So what does this mean for investors? Well, it might be a good time to do a portfolio check and make sure it’s positioned for continued inflation, additional rate hikes and more volatility in the market. Does it include dividend shares? Is there exposure to companies with pricing power or healthcare stocks, both of which are considered inflation hedges? Investors looking for broader protection should consider these defensive ETFs. The funds featured here use a variety of strategies, but have the same goal: to provide stability against the macro headwinds that still affect the markets.