4:20pm: Volatility the order of the day
The Dow closed Friday down 38 points, 0.1%, at 29,889, the Nasdaq Composite gained 153 points, 1.4%, to 10, 798 and the S&P 500 ticked up 8 points, 0.2%, to 3,675.
Despite the modest improvement for the S&P 500 on the day, the benchmark still experienced its worst week since March 2020.
The Dow was able to clear the 30,000-point mark during the session but ended lower after a volatile day of trading.
“It’s clear that there’s still some volatility and that’s a situation that’s going be with us for a while given the rising uncertainty,” said John Canavan, lead analyst at Oxford Economics, as reported by CNBC. “I do think that after the extreme moves that we’ve seen over the past week, it’s sort of an exhausted market looking to a three-day weekend and just trying to find a place to settle in.”
One reason for the volatility could be the so-called quadruple witching, which refers to the day once per quarter when stock index futures, single-stock futures, stock options and stock index options all expire at once.
12.05pm: Recession risk remains high
US stocks were mixed at noon with tech stocks having inched into positive territory, however, all three major US indexes remained on track for another week of steep losses.
At midday, the Dow Jones Industrial Average had dipped 106 points at 29,820 points, while the S&P 500 was steady at 3,662 points.
The tech-laded Nasdaq Composite on the other hand had gained 93 points at 10,739 points.
IG chief market analyst Chris Beauchamp noted as another bumpy week for stocks came to a close, there was little sign of the mood improving among investors.
“Wall Street opened with some gains but a reversal now appears to be in play,” he observed. “Fresh tightening from central banks, the ongoing withdrawal of stimulus and general caution about the outlook continue to drive investors out of stocks, with no sign of a summer bottom.”
Beauchamp noted that investors were firmly of the opinion that some kind of US recession was inevitable, with a survey by the Conference Board released on Friday showing that 60% of CEOs around the world believe that their geographic region would enter a recession by the end of 2023.
“Given that outlook, we should expect risk rebounds to be short-lived,” Beauchamp said. “Whether this spectre of recession changes the central bank focus to growth instead of inflation will be a key debate over the summer.”
10.50am: Proactive North America headlines:
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9.35am: US stocks edge higher after steep decline
US stocks opened slightly higher on Friday following a major sell-off during the previous day’s trading.
At the open, the Dow Jones Industrial Average was up 24 points at 29,951 points.
The S&P 500 was up 10 points at 3,676 points and the Nasdaq Composite had gained 74 points at 10,720 points.
OANDA senior market analyst Craig Erlam said investors have earned a weekend break in the sun after quite an extraordinary week in the markets that saw plenty of central bank action, even from those not scheduled to meet.
"Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control," he said.
"It is better than the alternative though; stagflation. A term that's been thrown around way too much in recent months which perhaps highlights the trepidation around it. We are not in a stagflationary environment, nor will we be later this year. But the risk of one is rising which is why central banks are becoming increasingly accepting of their actions tipping the economy into recession."
6.30am: Friday recovery predicted
US markets are expected to open higher on Friday, recovering some of Thursday’s sharp losses when all three major indexes closed at their lowest levels since 2020 as investors fretted over Federal Reserve interest rate policy following Wednesday's 75 basis point hike.
Analysts are expecting trading to remain volatile after further weak data as strong inflationary headwinds have become a mainstay and energy prices remain elevated.
Futures for the Dow Jones Industrial Average gained 0.8% in pre-market trading, while those for the broader S&P 500 index added 0.9%, and contracts for the Nasdaq-100 were up 1.1%.
“US stocks were battered on Thursday as the soft US data in the wake of a 75 basis points hike from the Federal Reserve fueled recession fears and triggered a heavy risk sell-off,” Swissquote Bank senior analyst Ipek Ozkardeskaya said, summing up sentiment in the market after yesterday’s unexpectedly weak economic reports.
The Philadelphia Federal Reserve said Thursday its gauge of regional manufacturing activity fell sharply to 2.6 in May from 17.6 in April, the lowest level of activity since the spring of 2020, while the US weekly jobless claims rose more than expected to 229,000 for the week ended June 11, suggesting that the labor market is cooling and amplifying fears of a recession.
Elsewhere, a report from the Commerce Department showed housing starts declined 14.4% to a seasonally-adjusted annual rate of 1.549 million units last month, the lowest level since April 2021, while permits for future homebuilding fell 7.0% to 1.695 million units, both of which Ozkardeskaya described as disappointing.
On the other hand, the firmer US dollar is an indication that “the upsetting data could hardly cheer up the Fed doves who know that the Fed won’t do much to help before inflation softens,” she said: “And unfortunately, inflation won’t soften until energy prices ease significantly.”
Oil prices rebounded aggressively on Friday after hitting the $112 per barrel yesterday on expectations that China’s economic recovery, the global travel boom and a tight supply will combine to keep the market bullish in the medium term.
News that the US is stepping up production, and a forecast that the Permian oil and gas output will hit record high in June have not helped, Ozkardeskaya said, forecasting that oil’s rally will lose pace nearing $120 per barrel as recession fears dent the global demand outlook.
In energy markets, WTI crude oil futures gained 0.8% to $118.57 a barrel and Brent crude futures added 0.9% to $120.89.
Contact the author at jon.hopkins@proactiveinvestors.com