S&P 500 books longest losing streak in two months, while Dow ekes out weekly gains

MARKET SNAPSHOT

U.S. equity benchmarks ended mixed Friday, leaving the Dow with weekly gains but the S&P 500 index and Nasdaq Composite with losses, as markets struggled to find new reasons to move higher amid weakness in the labor-market and the potential for higher borrowing costs.

How are stock benchmarks performing?

• The Dow Jones Industrial Average was up 0.98 point to end at 31,494.32 and has edged up for three consecutive weeks.
• The S&P 500 index fell 7.26 points, or 0.2%, to 3,906.71. The broad-based benchmark fell for its fourth straight session, marking its longest losing streak in two months.
• The Nasdaq Composite Index picked up 9.11 points, or 0.1%, to 13,874.46, also falling for its fourth consecutive session.

For the week, the Dow rose 0.1%, the S&P 500 fell 0.7% and the Nasdaq Composite slid 1.6%.

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What’s driving the market?

Weakness in the labor market and worries about rising bond yields have put pressure on the broader equities market, especially after a surprise increase in the number of Americans seeking jobless benefits in the latest week weighed on the outlook.

Still, market participants have been expecting further government spending to help avert the possibility of a relapse of weakness from the COVID pandemic, with ongoing negotiations in Congress on the Biden administration’s $1.9 trillion aid package.

During a CNBC interview on Thursday evening, U.S. Treasury Secretary Janet Yellen advocated for more rather than less aid for Americans and said that the risks of doing too little outweighed those for doing too much.

“We think it’s very important to have a big package that addresses the pain this has caused—15 million Americans behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing,” Yellen told CNBC. The House of Representatives will try to pass a $1.9 trillion coronavirus relief plan before the end of February, Speaker Nancy Pelosi said Thursday.

Video: Fed’s Williams: Not concerned about stimulus being excessive right now (CNBC)

Fed’s Williams: Not concerned about stimulus being excessive right now

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There are also growing expectations that the coronavirus vaccine rollout will bolster economic recovery in the second half of 2021. The U.S. averaged 72,831 new cases a day in the past week, down 44% from the average two weeks ago, while so far 59.1 million vaccine doses have been given, to about 17.8% of the population.

However, optimism around a robust economic rebound has underpinned a rise in U.S. Treasury yields as investors rotate out of government debt and increase their position in assets that might perform well in a so-called reflationary environment.

The 10-year Treasury note was yielding 1.344% on Friday, compared against 1.199% at the end of last week.

The Federal Reserve has vowed to keep benchmark interest rates at or near zero for the foreseeable future as the economy contends with the impact of the epidemic but some investors fear rapidly rising rates could impinge upon the central bank’s efforts to support growth. Others are more sanguine, noting financial conditions still remain loose.

“In terms of interest rate movement, it’s not something we need to worry about when rates are as low as they are now,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, in an interview.

“There is a point certainly where that becomes an issue for risk assets, especially if inflation starts to pick up to 3%,” said Gokhman, but did not anticipate inflation to rise that high.

New York Fed President John Williams said rising yields on longer term Treasurys reflects greater optimism about the economy “so it’s not a concern.”

Read: Complacent stock-market investors underestimate danger of big drop by U.S. dollar, warns veteran currency watcher

On Friday, a flash reading of purchasing managers index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 in the prior month, marking the strongest reading in almost six years and suggesting that parts of the economic recovery are starting to pick up speed as COVID-19 cases retreat.

In other economic reports, U.S. existing home sales rose 0.6% to 6.69 million rate in January.

Which stocks are in focus?

• Shares of Deere & Co. DE jumped 10.5% Friday, after the construction, agriculture and turf care equipment maker reported big profit and revenue beats for the fiscal first quarter, citing “improving conditions“ in the farm and construction sectors, and provided an upbeat full-year outlook. 
• Six Flags Entertainment Corp. SIX said it was preparing to open all of its parks for the 2021 season, although the reopening dates are subject to change based on local and federal guidelines related to the COVID-19 pandemic. Shares were up 4.9%.

How are assets faring?

• The yield on the 10-year Treasury note TMUBMUSD10Y gained 5.8 basis point to around 1.345% on Friday, booking its sharpest weekly rise since early january Bond prices move in the opposite direction of yields.
• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was off 0.3%, leaving it down 0.1%.
• Oil futures fell even as energy disruptions continued throughout the country, with the U.S. benchmark CL.1 falling $1.28, or 2.1%, to settle at $59.24 a barrel on the New York Mercantile Exchange. 
• Gold futures GC00 rose $2.40, or 0.1%, to settle at $1,777.40 an ounce, with prices for the most-active contract down 2.5% for the week.
• The pan-European Stoxx 600 index SXXP gained 0.7% and London’s FTSE 100 stock index UKX added 0.1%, even as the British pound breached a psychological level, changing hands at $1.40 for the first time since around 2018.
• Markets in Hong Kong HSI closed 0.2% higher, while Japan’s Nikkei 225 index NIK shed 0.7%. China’s Shanghai Composite Index SHCOMP finished Friday up 0.6%, while the CSI 300 000300 picked up 0.2% to end the week.