US stocks recorded their biggest weekly decline in two months, as investors digested mixed corporate earnings and weighed the prospect of further rises in interest rates after the release of important inflation data next week.
The S&P 500 index gained 0.2 per cent on Friday, falling 1.1 per cent in the week. The tech-heavy Nasdaq Composite fell 0.6 per cent on the day, losing 2.4 per cent across five sessions. The moves sent both indices to their most significant weekly losses since mid-December, with the Nasdaq’s weekly fall its first in 2023.
Jack Ablin, chief investment officer at Cresset Capital, attributed the week’s declines to an uneven set of quarterly earnings reported and concerns about the Federal Reserve’s plan to continue increasing interest rates.
“I think there was a combination of worry that the Fed is going to be too tight, and [is] waiting for inflation to drop dramatically,” he told the Financial Times. “At the same time, the earnings picture is weakening.”
Blue-chip companies such as Disney and PepsiCo exceeded analysts’ forecasts, but others in the consumer economy like Lyft, Chipotle and Mattel disappointed with their results.
US Treasury yields continued their climb, while the inversion between yields on two- and 10-year notes hit the deepest level since 1981. The yield on the 10-year note gained 0.06 percentage points to 3.75 per cent, and the rate-sensitive two-year yield rose slightly to 4.52 per cent.
“Every recession has been preceded by a inversion, and there’s been no inversion without a recession, so there’s no reason to think this is going to be any different,” Ablin said.
The dollar index, which measures the greenback against a basket of six of its peer currencies, rose 0.3 per cent.
The yen strengthened on Friday as investors responded to news of the likely appointment of academic Kazuo Ueda as the next Bank of Japan governor.
The Japanese currency gained 0.1 per cent to ¥131.45 to the dollar, as markets judged Ueda would mark a departure from the ultra-dovish policies of Haruhiko Kuroda, who is due to step down in April.
“The knee-jerk reaction has been for the yen to strengthen, reflecting a combination of uncertainty over Kazuo Ueda’s monetary policy views and that the continuity candidate Masayoshi Amamiya chose not to take the job,” MUFG analysts wrote in a note.
The yen dropped to a three-decade low of ¥151.94 in October, driven by the growing gulf between Japan’s loose monetary policy and interest rate rises elsewhere in the world. The currency has since rebounded and Kuroda relaxed the BoJ’s policy of pinning bond yields close to zero.
Brent crude settled 2.2 per cent higher at $86.39 a barrel after making bigger gains earlier in the day following Russia’s announcement that it would cut about 5 per cent of its monthly oil output in response to a price cap imposed by western nations.
UK energy stocks leapt to their highest level in more than three years as a result of the cuts. Shares of US supermajors ConocoPhillips and ExxonMobil both gained more than 4 per cent on Friday.
European equity markets slid, paring gains following good news earlier in the week on inflation and natural gas prices.
“When you look at the market at the start of the year it was strong, whereas now we are at the end of the bullish wave and now markets need to breathe,” said Nadège Dufossé, global head of multi-asset at asset manager Candriam. “It’s not likely linked to any good or bad news.”
The European Stoxx 600 closed 1 per cent lower on Friday, while Germany’s Dax fell 1.4 per cent. The French CAC 40 fell 0.8 per cent.
In Asia, the Hang Seng index lost almost 2 per cent, while China’s CSI 300 fell 0.6 per cent.
