Market

Dow, S&P 500, Nasdaq close lower in weekly slump on ‘quad witching’ and weak consumer sentiment

U.S. stock indexes closed lower Friday, slumping for the week, as bearish momentum gathered steam after a reading on consumer sentiment held close to a roughly 10-year low.

Investors also were dealing with volatility Friday from simultaneous options expiries, known colloquially on Wall Street as quadruple witching.

How did stocks trade?

On Thursday, the Dow
DJIA,
-0.48%

closed down 63.07 points, or 0.2%, to 34,751.32, the S&P 500
SPX,
-0.91%

ended down 6.95 points, or 0.2%, to 4,473.75, while the Nasdaq Composite
COMP,
-0.91%

rose 20.39 points, or 0.1%, to finish at 15,181.92.

For the week, the Dow lost about 0.1% in its third straight weekly decline, booking its longest weekly losing streak since the four weeks ending Sept. 25, 2020, according to Dow Jones Market Data. The S&P 500 saw a weekly decline of 0.6% in a second straight week of losses, while the Nasdaq Composite fell 0.5%, also booking two consecutive weeks of declines, according to FactSet.

What drove the market?

The bears were out in numbers on Friday, with downside momentum wiping out weekly gains for the three main indexes and sparking whipsawing action in the five-session trading stretch.

The market’s “consternation” is linked to concerns over the delta variant of the coronavirus and the toll it may be taking on growth, said Dave Grecsek, managing director of investment strategy and research at Aspiriant, in an interview Friday. “The market is really struggling to try and see through that.”

Declines on Wall Street accelerated somewhat following the University of Michigan’s gauge of consumer sentiment, which rebounded slightly to a preliminary September reading of 71 from a final August reading of 70.3, above consensus estimates for 72.

However, the reading remains close to the roughly 10-year low seen in August, with consumers feeling worse about the economy today than at any point during the COVID-19 pandemic.

Consumer sentiment is drawing more attention than it ordinarily would because of the significance of consumer behavior on the economic recovery from the pandemic.

“Consumer sentiment is still in the gutter, but consumers’ anxiety isn’t reflected much in consumer spending,” wrote Robert Frick, corporate economist with Navy Federal Credit Union, in emailed comments.

“We had surprisingly strong retail sales numbers released yesterday, and while spending on certain services is being hurt by the delta wave, services spending is still healthy and remains above pre-pandemic levels,” he wrote, adopting an optimistic tone.

“Consumer confidence is bottoming out as we move past peak delta in the U.S.,” said Jeff Schulze, an investment strategist at ClearBridge Investments, in a phone interview Friday. Schulze said that he expects growth, which hit a “soft patch” in the third quarter, to accelerate in the final three months of the year.

Indeed, data earlier this week showed stronger-than-expected U.S. August retail sales, but a jump in weekly jobless benefit claims, all ahead of next week’s two-day Federal Open Market Committee policy meeting.

Muddling the picture for some investors ahead of the rate-setting FOMC gathering is that data that otherwise looks healthy enough to justify ending pandemic programs and monetary policies that have been market supportive.

“Stronger-than-expected data seemed to have fueled Fed tapering expectations rather than the bulls’ appetite,” said Ipek Ozkardeskaya, senior analyst at Swissquote, who notes that sentiment feels mixed.

The market is starting to price in the “new reality” of a Fed that may become less accommodative as soon as this year as the economy strengthens, according to Schulze.

And: Fed interest rate increase outlook due next week carries risk of hawkish surprise

Read: When the Fed finally steps back, can the U.S. stock and bond markets stand on their own legs?

While Wall Street firms have expressed nervousness as stocks moved higher in recent months, Ozkardeskaya said a correction is being prevented by “the fear of missing out on a further rally in equities, the so-called FOMO, and the fact that there is no alternative, the so-called TINA.”

With the U.S. 10-year Treasury yield now around 1.38%, an advance to 2% that many forecast earlier this year has yet to happen, the analyst said, adding that “the high inflationary pressures leave investors with no place to go but the equities. Therefore, the U.S. indexes will continue claiming new highs in the coming sessions.”

Read: Will high inflation kill the bull market in stocks? History says probably not

Schulze, meanwhile, said he expects interest rates will rise as the Fed moves toward tightening its policy, with higher Treasury yields leading to lower stock valuations as inputs to discounted cash flow formulas are readjusted. In that sort of rising interest rate environment, Schulze said he favors value stocks and expects small-cap equities to outperform large-cap.

On the COVID front, a group of independent advisers to the U.S. Food and Drug Administration recommended that vaccinated adults aged 65 and older should get booster shots, but not for the general public. While companies such as Pfizer Inc.
PFE,
-1.30%

and Moderna Inc.
MRNA,
-2.41%

say the boosters are needed, scientists have cited a lack of evidence to support that rollout.

Market volatility Friday occurred during a “quad witching,” the simultaneous expiration of individual stock options, stock-index options, stock-index futures and single-stock futures.

Which companies were in focus?
  • Shares of Invesco
    IVZ,
    +5.46%

    rose 5.5% after The Wall Street Journal, citing sources, reported that the investment management group is in merger talks with State Street Corp.’s
    STT,
    -2.56%

    asset-management unit. State Street shares were off 2.6%.

  • Archer Aviation Inc.’s stock ACHR fell 4.4% on the NYSE on Friday, after the completion of the all-electric vertical takeoff and landing (eVTOL) aircraft maker’s merger with special-purpose acquisition company (SPAC) Atlas Crest Investment Corp. 

  • Shares of Lincoln Financial Group LNC were in focus Friday, after the insurer announced an agreement with Resolution Life subsidiary Security Life of Denver Insurance Co., to reinsure about $9.4 billion of executive benefit and universal life reserves. Its stock was up 1.4%.

  • Shares of Diamondback Energy Inc. FANG drew attention in Friday trade, after the oil-and-gas company announced a new $2 billion stock repurchase program. Its stock rose 3.2%.

  • Shares of Take-Two Interactive Software IncTTWO were down 0.2% after BMO Capital Markets analyst Gerrick Johnson downgraded the stock to market perform from outperform.

  • Shares of cybersecurity company IronNet Inc.
    IRNT,
    -26.91%

    tumbled 26.9%, but were still up about 40% on the week.

How were other assets trading?
  • The yield on the 10-year Treasury
    TMUBMUSD10Y,
    1.371%

    note rose 3.8 basis points to 1.37%.

  • The ICE U.S. Dollar Index
    DXY,
    +0.34%
    ,
    a measure of the currency against a basket of six major rivals, was trading 0.3% higher at 93.2 for a 0.7% weekly gain.

  • Oil futures fell Friday, with the U.S. benchmark
    CL00,
    -0.90%

    settling 0.9% lower at $71.97 a barrel but still posting a fourth straight week of gains. Gold futures
    GC00,
    -0.16%

    ended 0.3% lower to settle at $1,751.40 an ounce, down 2.3% for the week in a second straight weekly decline.

  • In European equities, the Stoxx Europe 600 index
    SXXP,
    -0.88%

    fell 0.9% and ended 1% lower on the week. The FTSE 100
    UKX,
    -0.91%

    slumped 0.9% on the session and notched a 0.9% weekly slide.

  • In Asia, the Shanghai Composite
    SHCOMP,
    +0.19%

    rose 0.2%, but booked a 2.4% weekly drop, Hong Kong’s Hang Seng Index
    HSI,
    +1.03%

    gained 1% but finished the week 4.9% lower and the Japan’s Nikkei 225 index
    NIK,
    +0.58%

    rose 0.6%, contributing to a 0.4% weekly gain.

–Barbara Kollmeyer contributed to this report

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