Stocks Fall for the Week; Metals Rally on Hopes of Reduced U.S.-China Tensions

Stocks Fall for the Week; Metals Rally on Hopes of Reduced U.S.-China Tensions

18:16 - Oil and metals prices gain on hopes of reduced geopolitical tensions after a call between President Biden and China’s Xi Jinping

The S&P 500 Index slumped to its worst weekly showing since February, with a broad pullback Friday highlighting investor concerns about a volatile fall ahead.

Stocks remain close to record highs, but have retreated in September after steadily climbing for much of the summer. Many investors say they are closely watching the Federal Reserve’s plan to pull back on its bond purchases later this year as the central bank scales back the easy money policies that helped drive the S&P 500 to more than 50 fresh highs this year.

After a blockbuster earnings season and speedy economic recovery this year, some analysts have said that the peak in economic growth may have passed. The latest jobs report showed that U.S. hiring slowed sharply in August as the surging Delta variant hampered the economic recovery. Many businesses have pulling back on travel and a measure of consumer sentiment recently fell to the lowest level in a decade.

The spread of the variant has added to investor jitters by raising the prospect of a coronavirus-induced slowdown.

“There are good reasons to make investors a little bit nervous,” said Jane Foley, head of foreign-exchange strategy at Rabobank.

Major indexes wavered for much of the trading session before turning lower late in the day. The S&P 500 dropped 34.70 points, or 0.8%, to 4458.58, falling for the fifth consecutive session, its longest losing streak since February. The Dow Jones Industrial Average slid 271.66 points, or 0.8%, to 34607.72. The technology-focused Nasdaq Composite dropped 132.76 points, or 0.9%, to 15115.49.

The S&P 500 and Dow fell 1.7% and 2.2%, respectively, for the week, their biggest such declines since June. The Nasdaq lost 1.6% this week, finishing its worst week since July.

Concerns about slowing economic growth and the Delta variant have led to a recent outperformance in tech stocks, as investors have turned to companies they think will benefit if the broader economy slows–a trade that worked for much of 2020 as businesses around the country were shut. Shares of Facebook and Netflix managed to eke out gains Friday even as the broader market notched declines.

“Looking at the index level is a little bit misleading,” said Kari Montanus, a senior portfolio manager at Columbia Threadneedle. “We’ve just seen big swings back and forth” between different corners of the market.

Some analysts have lowered their forecasts for the S&P 500 through the end of year. Bank of America analysts said they expect the S&P 500 to fall to 4250 by the end of the year, a roughly 5% decline, after the broad stock-market gauge has roughly doubled from its March 2020 pandemic low. The index remains up almost 19% this year. Meanwhile, the autumn months tend to be among the most volatile months of the entire year, according to Dow Jones Market Data.

On the economic front, the U.S. producer-price index rose 0.7% in August, down from a 1% jump in July. Economists polled by The Wall Street Journal had forecast a 0.6% advance.

In the bond market, the yield on 10-year Treasury notes ticked up to 1.340% from 1.300% Thursday, concluding three consecutive weeks of gains. Yields, which move inversely to bond prices, are on track to end the week roughly flat.

Investors did receive some positive economic news this week. Metal prices rallied after a phone call between Presidents Biden and Xi Jinping raised hopes of a cooling in tensions and potential reduction in tariffs between the U.S. and China. Copper prices, which are sensitive to relations between the world’s two largest economies, rose around 3.8% to $4.45 a pound.

China has already sold from state stockpiles of metals to curb the rally in commodity prices, which pushed factory-gate prices to their fastest monthly rise in 13 years in August.

In Asia, the Shanghai Composite Index edged up 0.3% after the call between Presidents Biden and Xi. A White House statement said the “two leaders discussed the responsibility of both nations to ensure competition does not veer into conflict.”Japan’s Nikkei 225 continued to rally in the wake of Prime Minister Yoshihide Suga’s decision to step down, which some investors say could lead to more fiscal stimulus. The Nikkei 225 added 1.3%.

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