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Market Snapshot: Dow poised to skid lower to end Fed week, mark 5th straight drop

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U.S. stock futures on Friday were trading mostly lower, with the Dow and S&P 500 headed for weekly declines, as investors continued to digest the Federal Reserve’s updated outlook for the economic recovery from COVID and inflation.

Friday also marks quadruple witching day, which is the simultaneous expiration of single-stock options, single-stock futures, stock-index options and stock-index futures.

The U.S. government is closed on Friday after President Joseph Biden signed a bill Thursday making Juneteenth a national holiday commemorating the end of slavery in the U.S. However, the stock and bond markets remain open for business.

How are stock benchmarks trading?

On Thursday, the Dow
DJIA,
-0.62%

closed down 210.22 points, or 0.6%, at 33,823.45, marking a four-day skid, its longest since January. The S&P 500
SPX,
-0.04%

edged down 1.84 points, or less than 0.1%, to 4,221.86. The Nasdaq Composite
COMP,
+0.87%

gained 121.67 points, or 0.9%, to 14,161.35.

Weekly stats

For the week, the Dow is set to mark a weekly decline of 1.9%, its second weekly fall in a row and its steepest such drop since Jan. 29. The Nasdaq was aiming for a weekly gain of 0.7%, marking its fifth straight weekly climb, which would mark its longest weekly win streak since the period ended Aug. 28. The S&P 500 is down 0.6% for the week thus far, on track to snap a three-session weekly win streak.

What’s driving the market?

Wednesday’s statement from the Federal Open Market Committee and remarks by Fed Chairman Jerome Powell were viewed as setting the stage for a less accommodative stance by the central bank. Fed policy makers penciled in two rate hikes by the end of 2023 and discussed the eventual tapering of the central bank’s asset buying program. 

Growing expectations that the U.S. central bank will raise rates as soon as 2023 has helped to yank equities down from record highs put in earlier this week by the S&P 500 and the Nasdaq Composite.

The tech-Nasdaq Composite has remained relatively buoyant, however, as a pullback in Treasury yields has encouraged buying in technology and tech-related, growth areas, which can be sensitive to rising borrowing costs.

Moves in longer-dated bonds have been pegged to technical factors, including bearish bets on bonds, however, with some strategists and investors wagering that yields will eventually climb as prices fall, in response to Fed that appears to be preparing the market for peppier inflation and higher interest rates.

“Although long-term real yields have dropped back a bit after their initial surge, we expect them to rise again in due course,” wrote Thomas Mathews, market economist at Capital Economics, in a Friday research report.

Mathews is forecasting the S&P 500 to pare its gains over the coming six months and see muted returns in the 2022 and 2023, amid a higher interest-rate regime.

“This would represent an annualized increase of ~4% from its current level, compared with ~13% in the past decade,” he forecast.  

Meanwhile, shares of U.S. airlines rose in premarket trading on Friday after the European Union reportedly recommended the lifting of a nonessential travel ban for Americans across its member states. Governments made the decision on Friday to add the U.S. to a “white list” of countries, and each country will now be able to decide what kind of restrictions, if any, to place on U.S. visitors, the New York Times and Bloomberg reported. 

There will be no economic data as the government observes the Juneteenth holiday.

Which companies are in focus?
  • Sykes Enterprises Inc. SYKE announced an agreement Friday to be acquired by Sitel Group in a cash deal for the customer experience management services valued at $2.2 billion.
  • Moderna IncMRNA said Friday it remains committed to creating jobs in Massachusetts and will hire at least 155 more people for high-tech manufacturing roles this year.
  • Shares of Orphazyme A/S ORPH plummeted in premarket trading Friday, after the Denmark-based biopharmaceutical company said overnight that it received a “Complete Response Letter” (CRL) from the U.S. Food and Drug Administration regarding its treatment for Niemann-Pick disease type C (NPC).
  • Shares of Curevac CVAC rose 10% in premarket trading on Friday. Shares of the German biotech have lost 48% this week after the company said a late-stage clinical trial of its COVID-19 vaccine was only 47% effective.

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