U.S. stock indexes came off their worst levels of the session late morning Friday, with technology shares reversing an earlier intraday slump that briefly took the Nasdaq below 15,000, as investors assess the economic impact of the spread of the coronavirus omicron variant and the most recent moves by central banks around the globe.
Part of the volatility could be attributed to quadruple witching, or the simultaneous expiration of single-stock options, single-stock futures, and stock-index options and stock-futures.
The Dow Jones Industrial Average
fell 298 points, or 0.9%, to 35,567, but had touched an intraday low at 35,284, down by 613 points or 1.7%.
The S&P 500
was trading down 0.4%, or 18 points, to 4,654, but had established an intraday low at 4,600.22 before rebounding.
The Nasdaq Composite Index
reversed course to gain 63 points, or 0.4%, to reach 15,258, after touching a Friday low at 14,960.37.
- For the week, the Dow was set for a weekly skid of 1%, the S&P 500 was on track for a 1.1% drop and the Nasdaq Composite was on pace for a 2.3% decline over the same period.
On Thursday, the Dow eased 30 points, or 0.1%, to 35898, the S&P 500 lost 0.9%, or 41 points, to 4669 and the Nasdaq Composite slumped 2.5%, or 385 points, to 15180.
What’s driving markets
So-called quad witching day in stocks may be helping to produce a whipsawing Wall Street session, as investors digest the impact of the Federal Reserve’s recent moves to tighten monetary policy in the face of high inflation as well as the spread of the omicron variant which is leading to some restrictions on consumer activity again as the pandemic’s second year draws to a close.
President Joe Biden on Thursday warned that hospitals could be overwhelmed, as the omicron variant spreads rapidly across the U.S., declaring the potential for a “winter of severe illness and death,” speaking at a White House briefing. The progress of the illness has raised some doubts about the economy and the reaction of central banks to the persistent pandemic.
“The big picture is that central banks generally sounded more concerned about the rise in inflation, despite the ongoing spread of the Omicron variant,” wrote analysts at Capital Economics, in a research report dated Friday.
New York Fed President John Williams, during a CNBC interview on Friday, however, said he is confident the central bank can get a handle on surging inflation without causing a recession, as some market participants fears.
Fears of an economic slowdown were emanating out of the bond market early Friday, with the 10-year Treasury note
yield falling below a closely watched level at 1.40% for the first time since earlier this month. A decline in long-dated Treasury yields often implies that investors are worried about the economic outlook.
The slide in yields comes even though the Fed on Wednesday announced plans to speed up the reduction in its monthly bond purchases so that the program ends in March and not June. The central bank also projected three quarter-point interest rate increases next year as Fed Chairman Jerome Powell said there was a risk of high inflation persisting.
Williams said the economy is now in a unique set of circumstances driven by the COVID pandemic and “looking back at historical episodes” isn’t the best guide for how the economy will evolve.
Since the Fed meeting, however, trading has been volatile in financial markets.
On Thursday, the yield curve, representing the differential between shorter-dated bonds and longer-dates, was flattening and value stocks were outperforming versus momentum, a pattern that is been evident at different times this year when investors expected more hawkish central bank policy.
“Stock markets are ending the week on a downbeat note after central banks around the world largely adopted a more hawkish stance in recent days,” said Craig Erlam, Senior Market Analyst, UK & EMEA, at OANDA.
“Only time will tell whether investors support the moves from central banks this week as much as they initially appeared to. More than a decade of ultra-low interest rates has been kind to investors and the path that many central banks have embarked on makes life a little harder for them, but not nearly as hard as high inflation.”
It isn’t just the Fed responding to faster inflation. Thursday featured rate increases coming out of Mexico, Norway and the U.K., and the European Central Bank pledging next year to reduce the rate of bond purchases.
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Which companies are in focus?
Shares of General Motors
after the abrupt departure of longtime company executive Dan Ammann. Ammann, up until Thursday, was running GM’s self-driving car division, Cruise Automation. Its stock was down over 4%.
- Also of note, U.S. Steel X warned of a “temporary slowdown” in orders during the fourth quarter. Its stock was down 1.8%.
- Rivian Automotive RIVN shares slumped 11% after its first quarterly report as a public company.
How are other assets faring?
- The ICE U.S. Dollar Index DXY, a measure of the currency against a half-dozen other monetary units, was down 0.6% after Europe’s central bank moves.
- In oil futures, West Texas Intermediate crude CL00, for January CLF23 delivery rose 2.1% to end at $72.38 a barrel.
- Gold futures GC00 for February delivery GCG22 was rising 0.5%, to trade at $1,808 an ounce, hanging around its highest settlement since Nov. 22.
- The Stoxx Europe 600 Index SXXP traded1.1% lower, while London’s FTSE 100 Index UKX was off 0.2%.
- In Asia, the Shanghai Composite Index SHCOMP lost 1.2%, while the Hang Seng Index HSI fell by 1.2% in Hong Kong. China’s CSI 300 000300 skidded 1.6% lower on Friday. Japan’s Nikkei 225 Index NIK declined 1.8%.