On Friday, U.S. stock markets faced a significant downturn, accompanied by rising Treasury yields, as chip stocks took a plunge and mixed economic data unsettled investors, marking the end of a tumultuous week.
All three major U.S. stock indexes closed deeply in the red, with the technology-heavy Nasdaq particularly affected by the struggles of chipmakers. The S&P 500 and the Nasdaq saw their weekly gains wiped out, while the Dow managed to eke out a modest weekly increase.
One of the key drivers of this downturn was the Philadelphia SE Semiconductor index, which tumbled by 3.0%. A Reuters report revealed that Taiwan’s TSMC had asked major suppliers to postpone the delivery of high-end chipmaking equipment, sparking concerns in the semiconductor industry.
On the economic front, the data released on Friday presented a mixed picture. Import prices surged, industrial production exceeded expectations, but University of Michigan consumer inflation expectations cooled. This combination of indicators solidified the expectation that the Federal Reserve would keep its key interest rate unchanged in its upcoming monetary policy meeting. It also fueled hopes that the central bank’s tightening cycle might be reaching its conclusion.
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Chuck Carlson, the CEO at Horizon Investment Services, noted, “There’s a tug of war going on between those who think inflation and interest rates are going to come down and the Fed is going to start cutting rates next year, and those who believe that inflation is going to stay well above the Fed target for a while and therefore rates will stay higher for longer.”
Financial markets have already priced in a 97% likelihood that the central bank will maintain the Fed funds target rate at its current level when it announces its decision next Wednesday. Moreover, there’s a 68.5% likelihood of the same outcome at the conclusion of its November meeting, according to CME’s FedWatch tool.
Robert Pavlik, a senior portfolio manager at Dakota Wealth, stated, “If we get a pause in September and November, that could lead to a nice year-end rally, which will feed the belief that the next move by the Fed will be a rate cut in 2024.”
In terms of market performance, the Dow Jones Industrial Average fell by 0.83% or 288.87 points to close at 34,618.24. The S&P 500 lost 1.22% or 54.79 points, settling at 4,450.31, while the Nasdaq Composite dropped by 1.56% or 217.72 points to finish at 13,708.34.
On the other side of the Atlantic, European stocks bucked the trend, closing higher as they extended a rally sparked by the European Bank’s indication that its rate-hiking cycle might be ending. The pan-European STOXX 600 index rose by 0.23%, contributing to a weekly gain. Meanwhile, emerging market stocks gained 0.33%, and Asia-Pacific shares outside Japan closed 0.58% higher, with Japan’s Nikkei rising by 1.10%.
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Treasury yields in the U.S. saw an increase ahead of the Federal Reserve policy meeting scheduled for the following week. Two-year yields crossed the 5% threshold, raising concerns that restrictive interest rates could persist longer than anticipated. The benchmark 10-year notes saw a slight dip in price, resulting in a yield of 4.3304%, while the 30-year bond also fell in price, yielding 4.4182%.
The U.S. dollar, despite a slight decline against a basket of world currencies, achieved its ninth consecutive weekly gain. The dollar index fell by 0.08%, with the euro rising by 0.16% to $1.0658. The Japanese yen weakened by 0.28% against the greenback at 147.89 per dollar, while Sterling was last trading at $1.2382, down 0.22% on the day.
In the commodities market, oil prices continued their upward trajectory, marking a third consecutive weekly gain due to supply tightness and optimism surrounding the Chinese economy’s recovery. U.S. crude settled at $90.77 per barrel, up 0.68%, while Brent settled at $93.93, representing a 0.25% increase on the day.
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Gold prices, conversely, surged as they rebounded from three-week lows in response to the dollar’s weakness. Spot gold added 0.7% to reach $1,922.69 an ounce.
