Friday, November 11, 2016
U.S. equities traded mostly lower on Friday as the post-U.S. election rally took a breather, with the three major indexes poised to record their best weekly gains of the year.
The Dow Jones industrial average opened slightly lower but briefly broke above the flatline, with Walt Disney contributing the most gains and Merck the most losses. The S&P 500 fell 0.3 percent, with health care leading decliners.The Nasdaq composite underperformed, falling 0.45 percent as Apple, the iShares Nasdaq Biotechnology ETF (IBB) an the so-called FANG stocks (Facebook, Amazon, Netflix and Google’s parent, Alphabet) all falling.
“Within a week, the market went from egregiously oversold to overbought. They managed to repair all the damage done during the nine-day losing streak,” said Adam Sarhan, CEO of 50 Park Investments.
Stocks skyrocketed after Republican Donald Trump’s surprise victory over Hillary Clinton. The Dow closed at an all-time high on Thursday, while the S&P and the Nasdaq were flirting with their record highs entering Friday. Financial markets, as well as numerous pollsters and political analysts, had expected Clinton, the former secretary of State, to win the race for the White House.
“The market is giving Trump the bullish benefit of the doubt,” Sarhan said. But “if he starts going off the deep end, whether on foreign policy or something else, then that could be bad for the market.”
Since Trump’s victory, investors have been quickly reallocating assets, increasing exposure to financials and industrials, while lowering positions in sectors like utilities, real estate and consumer staples.
Entering Friday, financials and industrials had gained 10.9 percent and 7.65 percent, respectively, while utilities, consumer staples and real estate were down 3.71 percent, 1.97 percent and 1.61 percent, respectively.
Sharp moves were also seen in the U.S. Treasury market following Trump’s win, with the benchmark 10-year yield breaking above 2 percent. The U.S. bond market was closed on Friday due to Veterans Day.
The dollar, meanwhile, surged against a number of Emerging Markets currencies, especially the Mexican peso. Since Tuesday, the peso has fallen nearly 12 percent against the U.S. currency, according to FactSet. The Brazilian real, another closely watched EM currency, has dropped about 6.7 percent. EM currencies in Asia weren’t spared, either, with the Malaysian ringgit and the Chinese yuan also falling.
“While the declines seen in Asian currencies are being linked to the impact of trade throughout the continent if Donald Trump enforces protectionist trade policies, the return of expectations that the Federal Reserve will still raise US interest rates in December is strengthening the Dollar and also pressuring the emerging market currencies,” Jameel Ahmad, vice president of market research at FXTM, said in a note.
“If the Federal Reserve do not raise US interest rates in December as they have been preparing the markets towards for months following such a spectacular rebound in stocks after the victory by Trump, it will raise questions over credibility and concerns that they are worried about Donald Trump taking over office in January,” he said.
The Fed is largely expected to raise rates next month, according to the CME Group’s FedWatch tool, which said market expectations for higher rates were around 76 percent.
Before the bell, Fed Vice Chairman Stanley Fischer said the case for removing accommodation is “quite strong” while interest rates will plateau at a level that is lower than normal. He added that He expects U.S. rates to rise gradually, and said the Fed is close to achieving its dual mandate. The Fed’s goal is to return to 2 percent longer-run inflation and to maximize employment.
In economic news, consumer sentiment data are due at 10 a.m.
Overseas, European equities traded slightly lower, with the pan-European Stoxx 600 index slipping 0.25 percent. In Asia, stocks closed mostly lower, with the Nikkei 225 gaining 0.18 percent and the Korean Kospi falling 0.91 percent.
—CNBC’s Katie Little contributed to this report.
On tap this week:
Bond market closed, stock market normal hours
10:00 a.m. Consumer sentiment