The Nasdaq Composite tumbles 2.7% on Friday to book the worst week since the start of the COVID era as stock markets peak sharply

On Friday, the gauges for U.S. stocks ended sharply lower, capping a weak week for investors, highlighted by the biggest weekly drop in the S&P 500 and the tech-laden Nasdaq Composite since March 2020.

How are stock indices traded?
  • The S&P 500 SPX,
    -1.89%
    fell 84.79 points, or 1.9%, to close at 4,397.94.

  • The Dow Jones Industrial Average DJIA,
    -1.30%
    lost 450.02 points, or 1.3%, to 34,265.37.

  • The Nasdaq COMP composite index,
    -2.72%
    fell 385.10 points, or 2.7%, breaking through a round psychological level at 14,000 to close at 13,768.92.

  • For the week, the Nasdaq Composite fell 7.6%, its worst performance since March 20, 2020. The S&P 500 fell 5.7%, also its biggest drop since March 2020, and the Dow recorded a decline of 4.6. Weekly % slippage for the shortened holiday week, its worst since October 30, 2020.

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What drives the markets?

It was the week unfolding on Wall Street, a vacation-abbreviated trading period that might have felt like a time for bullish investors.

A bearish pall is cast over the market and volatility has become the new normal, with investors enduring notable intraday price swings to wrap up a withering week.

The S&P 500 posted its third consecutive weekly loss, according to FactSet data. Almost all 11 sectors of the S&P 500 ended lower for the day, led by the SP500.50 communication services,
-3.88%,
down 3.9%, and Consumer Discretionary SP500.25,
-3.10%,
by 3.1%. Basic consumption SP500.30,
+0.02%,
seen as a defensive play, were the exception, ending flat on the day.

The stats were worse for the Nasdaq Composite, which recorded its fourth consecutive weekly loss, following a sixth consecutive daily decline, marking its longest losing streak since 2012.

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After entering correction territory on Wednesday, the Nasdaq Composite only deepened this rout. The index is down about 15% from its record close in November, approaching the 20% decline from a recent high that would meet the commonly used definition of a bear market.

Much of the discussion surrounding the recent bout of weakness in equities has centered on rising yields and the prospect of higher benchmark rates. Markets were dogged by a sell-off in the bond market and fears of Federal Reserve tightening to fight soaring inflation, which particularly hit rate-sensitive tech stocks.

On Wednesday and Thursday, the indices posted gains early in the day only to give them up later and on Friday the losses deepened at the close, giving bullish investors another punch.

A bumpy start to the earnings season has also shaken investor confidence, with a string of disappointing bank results and gloom over Netflix NFLX,
-21.79%,
after the streaming service reported number of subscribers much lower than expected.

“So far in January, upward earnings revisions have fallen to 58.6%, from 71.8% in December and 70.7% in November, from a peak of 82.3% in August,” wrote the Citigroup analysts.

“The spike in revision momentum could be a catalyst for market weakness,” the Citi analysts wrote.

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And: “We see few catalysts.” Netflix hit with Wall Street downgrades after disappointing subscriber forecasts.

Peter Cardillo, chief market economist at Spartan Capital, said lower guidelines from big banks have been a key factor. “Nevertheless, we are at the start of earnings season and remain confident that the overall ratings will strengthen market fundamentals, mitigating the shock of rising yields,” he said.

The yield of the 10-year Treasury note TMUBMUSD10Y,
1.762%
fell on Friday to finish below 1.75%, but soared this month, from 1.5% in early January.

Meanwhile, cryptocurrencies came under pressure, with bitcoin BTCUSD,
-0.64%
falling below a key support level at $40,000, dragging the sector lower. The losses come a day after the Russian central bank proposed to ban the use and mining of cryptos.

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The economic calendar is light on Friday, including only the Conference Board’s leading economic index for December, which rose 0.8%, in line with forecasts and signaling stable growth even as the spread of the omicron variant of the coronavirus has eroded economic activity.

Which companies are targeted?
  • Interactive Platoon
    PTON,
    +11.73%
    shares soared 11% on Friday after chief executive John Foley pushed back on media reports claiming a production shutdown and layoffs that triggered a 23% drop in Thursday’s regular trading session.
  • Shares of Netflix ended down 22% on Friday, while shares of RivaWalt Disney & Co. DIS, along with its Disney+ and Hulu services, closed 6.9% and streaming device maker Roku ROKU ended down 9.1%.

How are other assets trading?
  • The ICE US Dollar Index DXY,
    -0.10%,
    a measure of the currency against a basket of six major rivals, fell 0.1% but rose 0.5% on the week.

  • GC00 gold futures,
    +0.23%
    fell 0.6% to settle at $1,831.80 an ounce, but marked a weekly gain of 0.8%, and crude oil prices continued to retreat from 7-year highs , with US crude CL00 down 0.5% at $85.14 a barrel on the New York Mercantile Exchange, reducing the US benchmark’s weekly advance to 2.2%.

  • The Stoxx Europe 600SXXP,
    -1.84%
    fell 1.8% and recorded a weekly decline of 1.4%, while London’s FTSE 100 UKX,
    -1.20%
    closed down 1.2% and was down 0.7% for the week.

  • The Shanghai Composite SHCOMP,
    -0.91%
    closed down 0.9% and barely finished in positive territory for the week; CSI 300 000300 from China,
    -0.92%
    closed 0.9% but recorded a weekly advance of 1.1%, and Japan’s Nikkei 225 NIK,
    -0.90%
    fell 0.9%, with a decline of 2.1% on the week.

About Troy McMiller

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