The S&P 500 index ended the week nearly unchanged on Friday, as gains in energy and defensive sectors balanced out the weakness in megacap growth stocks. Investors were also looking ahead to the speech by Federal Reserve Chair Jerome Powell next week, which could provide clues on the interest rate outlook.
Energy and defensive stocks lead the gains
The S&P 500 energy index rose 0.9%, with Exxon Mobil among the leading gainers, up 1.5%. Oil prices rebounded from a seven-day losing streak, as signs of tight supply and strong demand offset concerns about the impact of the delta variant of the coronavirus on global growth.
The defensive sectors such as consumer staples and utilities also advanced, with Walmart rising 1.2% and Procter & Gamble adding 0.8%. These sectors are typically seen as more resilient to economic downturns and less sensitive to interest rate changes.
Megacap growth stocks weigh on the market
The megacap technology-related growth stocks, which have been driving the market rally this year, dipped on Friday, as investors fretted that interest rates could stay higher for longer. Higher interest rates reduce the present value of future cash flows, making growth stocks less attractive.
Alphabet, the parent company of Google, fell 1.9%, while Tesla dropped 1.7%. The tech-heavy Nasdaq Composite index posted the biggest weekly decline of the three major indices, losing 2.6%.
Nvidia, the chip designer that has nearly tripled in value year to date, fell 0.1% on Friday, but still notched a weekly gain. The company is expected to report its quarterly earnings on Wednesday, which could show strong growth in artificial intelligence and gaming segments.
Powell’s speech in focus
With no major catalysts driving the markets, investors shifted their focus to Powell’s speech at the Jackson Hole economic symposium next Friday, which could offer some hints on the Fed’s plans to taper its bond-buying program and raise interest rates.
The Fed has said that it will start reducing its $120 billion monthly asset purchases later this year, if the economy continues to recover from the pandemic. However, the timing and pace of the tapering remain uncertain, as the delta variant poses a risk to the outlook.
The Fed has also signaled that it will keep interest rates near zero until at least 2023, but some policymakers have suggested that they could hike rates sooner if inflation remains elevated. The latest data showed that consumer prices rose 5.4% in July from a year ago, the highest since 2008.
Market sentiment mixed
The market sentiment was mixed on Friday, as investors weighed the prospects of economic growth and monetary policy against the risks of rising inflation and virus cases.
The CBOE volatility index, a measure of expected market swings, hit its highest level in nearly three months, reflecting rising investor anxiety.
On the positive side, some corporate earnings reports beat expectations, such as Estee Lauder, which reported a 62% increase in quarterly sales. However, the cosmetics maker also forecast its annual net sales and profit below analysts’ estimates, citing supply chain disruptions and uncertainty over travel and tourism.
The S&P 500 has fallen 4.6% in the past three weeks, its biggest such decline since March. The index is still up about 16% year to date, supported by strong earnings growth and fiscal stimulus.
