Stocks fell Friday as GOP negotiators halted ongoing debt ceiling negotiations, stoking doubt of a deal being reached soon. However, the S&P 500 notched its best week since March.
All three major averages capped the week with gains. The S&P 500 rose 1.65%, and the Nasdaq Composite gained 3.04%. It was the best weekly performance since March for both indexes. The Dow added 0.38%.
A chunk of those gains came Thursday, as traders mounted bets that a U.S. debt ceiling deal could be reached. Comments from House Speaker Kevin McCarthy Thursday seemed to suggest a potential deal could come as soon as next week.
However, stocks turned lower Friday after GOP negotiators walked out of a debt ceiling meeting, with Rep. Garret Graves, R-La., saying the White House team is "unreasonable," according to NBC News. "We're not going to sit here and talk to ourselves," he said.
Friday's losses were kept in check, however, after Federal Reserve Chairman Jerome Powell said interest rates may not have to rise as much as expected to quell inflation.
"Markets have had a fairly constructive week, and were trading better as in the early hours of today's trading day, in large part due to a more constructive or positive sentiment around the debt ceiling negotiations. And that took a little bit of a bump in the road [today] as the negotiations have taken a pause," said B. Riley Financial's Art Hogan.
"I don't think that is the end. But I certainly think that going into the weekend, with any uncertainty about the debt ceiling, it's going to cause a bit of a sell off," he added.
Stocks close lower Friday, but cap a week of gains
Stocks closed lower on Friday, but posted a positive week.
The Dow Jones Industrial Average dropped 109.28 points, or 0.33%, to 33,426.63. The S&P 500 traded 0.14% lower to 4,191.98. The Nasdaq Composite slid 0.24% to 12,657.90.
All three major averages capped the week with gains. The S&P 500 rose 1.65% in its biggest one-week advance since March. Meanwhile, the Nasdaq Composite gained 3.04% for the week, also its best weekly performance since March. The Dow added 0.38%.
— Sarah Min
Stay defensive, UBS Global Wealth Management says
UBS Global Wealth Management's Mark Haefele noted investors may be better off playing defense in their portfolio, given the current backdrop.
"Equity markets have remained calm, but the next few weeks could see us test the limit of how much risk they can absorb. We see better risk-reward in high-quality bonds than in broad US equity indexes, and favor gold as a portfolio hedge," Haefele wrote.
— Fred Imbert, Michael Bloom
Stocks off session lows in final hour of trading
Stocks were off their session lows shortly into the final hour of trading.
The Dow Jones Industrial Average dropped 82 points, or 0.25%. Earlier in the session, it was down by as much as 199.25 points, or 0.59%.
— Sarah Min
Don't get too bullish on stocks just yet, Barclays warns
The S&P 500 is headed for its best week since March, but Barclays advised clients against making overly bullish bets on the market going forward.
Strategist Venu Krishna noted that a sharp divergence in the equity risk premium between the S&P 500 equal weighted index and the S&P Small Cap 600 equity risk premiums "indicates that mega-cap stocks are inflating SPX valuations, especially after the regional banking crisis."
"Mega-cap outperformance is not unusual in historical instances of heightened stress, so Big Tech multiples could see near-term support at current levels even after leading the market throughout the recent flight to safety," Krishna said. "The immense potential for AI also provides medium-term support, but it is too early to assess the full impact."
"We would caution against an overly bullish interpretation (e.g., the rest of the market is cheap) as equities are still exposed to earnings risk and we see few upside catalysts, leaving risk/reward skewed asymmetrically to the downside," the strategist added.
— Fred Imbert, Michael Bloom
Debt ceiling negotiations a 'lose-lose' for investors right now, Interactive Brokers says
The latest developments around U.S. debt ceiling talks have left stock investors in a tough spot, Interactive Broker's Jose Torres said Friday.
"Clearly, significant challenges exist for risk assets, and investors with an overly optimistic outlook may be walking on an unrealistic dream," the firm's senior economist wrote. "Debt-ceiling negotiations are a lose-lose for equity investors at this point, as a failure to strike a deal will lead to an immediate recession, while a deal will strain liquidity from markets as the US Treasury issues trillions in new bonds, which are newly born."
— Fred Imbert
Disney's current tailwinds could 'cloud long-term potential,' says Macquarie
Macquarie Research downgraded Disney shares to neutral from outperform, citing near-term uncertainties.
The research firm said in a Friday note that the company's linear networks are worsening. Analyst Tim Nollen said that while Disney's streaming division losses are abating, prior guidance of its direct-to-consumer guidance becoming profitable by the 2024 fiscal year seems unlikely.
"Current difficulties cloud long-term potential," Nollen said. "We still appreciate Disney's efforts and expect its transformation to streaming to succeed, but we see the stock as range-bound for now."
Shares declined nearly 2% as of Friday afternoon.
— Hakyung Kim
The post-Bed Bath & Beyond world is starting to play out
The slow and painful demise of Bed Bath & Beyond gave rivals plenty of time to tweak their strategies to win the bankrupt retailer's business. It's playing out, says Jefferies analysts, who share a number of fresh examples:
- Williams-Sonoma has unveiled a "college kitchen" offering, filled with items suitable for dorm living. Bed Bath & Beyond had long been a popular back-to-college destination.
- Sur La Table is accepting the retailer's famous 20% off coupons for a limited time.
- Etsy has launched a wedding registry, filling in a gap in this space.
- TJX Cos. has reset its HomeGoods stores at locations that were near closed Bed Bath stores to capture new shoppers.
As for all those empty stores, Jefferies said many of the landlords are reporting they are finding new tenants. Two examples: RioCan REIT said it has interest for 13 stores in Canada, while Regency Centers said grocers, off-price retailers, home decor and sporting goods retailers as well as medical providers have been interested in its 10 locations.
—Christina Cheddar Berk
Only four S&P 500 sectors are trading in positive territory
After starting Friday off on a brighter note, investor sentiment dipped during early afternoon trading.
Only four S&P 500 sectors out of 11 were trading in positive territory, compared to a majority of sectors earlier. Those sectors were energy, health care, utilities and materials, which were up 1.1%, 0.6%, 0.2% and 0.2%, respectively.
On the other hand, consumer discretionary stocks were the biggest laggard, down 0.8%.
— Sarah Min
Stocks making the biggest moves midday
Check out some of the companies making headlines in midday trading Friday.
Occidental Petroleum — Shares of the Houston-based oil and gas producer rose nearly 2%. Warren Buffett's Berkshire Hathaway bought more shares on each of the last six trading days, boosting its stake to 24.4%. Buffett has ruled out the possibility to take full control of Occidental.
Disney — The media conglomerate fell nearly 2% in midday trading after Macquarie Research downgraded shares to neutral from outperform. "We still appreciate Disney's ability to successfully transform to
a DTC-first streaming business over time, but now see more interim uncertainties," Macquarie wrote.
Western Alliance, PacWest — shares of the regional banks dipped more than 4% each, giving back some of their sharp gains from this week. Despite the losses, Western Alliance and PacWest are still up more than 20%.
Read the full list here.
— Brian Evans
Catalent is the top performer in the S&P 500
Catalent was the top performer in the S&P 500, rising 14.4% during midday trading.
CEO Alessandro Maselli shared a business update, saying during a call that the company thinks it "can sufficiently service [customers'] demand." The company has been dealing with problems at various production sites this year.
— Sarah Min, Fred Imbert
BTIG says Nasdaq retracement likely
A retracement in the Nasdaq Composite is becoming an increasingly likely outcome, according to BTIG's Jonathan Krinsky.
"We feel pretty confident that the Nasdaq is in the last inning or two of this move, and likely to retrace much of the recent gains," the chief market technician said in a Friday note to clients. "The big question now is, can we see rotation into the laggards, or is everything going to fall together, which has been our view."
Krinsky called the recent action in the tech-heavy index a "blow-off or panic bid." The Nasdaq's gained 3% so far this week and 21% year to date.
— Samantha Subin
Powell says rates may not have to rise as much as expected
Federal Reserve Chair Jerome Powell said Friday that interest rates may not have to rise as much as previously thought in part due to stresses seen in the banking sector.
"The financial stability tools helped to calm conditions in the banking sector. Developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation," he said as part of a panel on monetary policy.
"So as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals," he added. "Of course, the extent of that is highly uncertain."
— Jeff Cox
Stocks turn lower in midday trading after pause in debt ceiling talks
Stocks turned lower during midday trading after GOP negotiators halted debt ceiling negotiations.
Earlier in the session, the Dow was higher by 116.99 points, or 0.35%. The S&P 500 was up by 0.35%, and the Nasdaq had climbed 0.34%.
— Sarah Min
Deere shares give up gains on fears that softer demand could be ahead
Deere boosted its profit forecast for the year sending shares higher in trading on Friday morning, but the momentum ended after CFO Josh Jepsen revealed high inventory levels during a conference call. That sparked concerns that demand from farmers is slowing. The big price increases that helped Deere offset inflationary pressures in the past are also expected to moderate in the third and fourth quarters. Shares were recently down 1.6%.
Deere said it's not seeing weaker demand, and defended the higher inventory levels, saying it's a benefit for its dealers as it provides them with more time to deliver machines and to facilitate used trade-ins.
—Seema Mody, Christina Cheddar Berk
Baird says A.I. could improve Zoom's 'investor narrative'
Artificial intelligence may offer the next big tailwind for pandemic-darling Zoom Video Communications, according to Baird.
"If online can stabilize, solid enterprise results, a strong balance sheet and growing AI investments could start to improve the investor narrative," wrote analyst William Power in a Friday note to clients.
Power views the company as uniquely positioned to harness AI given its strong cash flows and "engineering DNA."
Overall, he anticipates in-line results, or a slight beat, when the company reports next week. Online risks may linger longer term, although strengths within Zoom's phone business should benefit enterprise trends.
— Samantha Subin