Wall Street took a breather on Friday following three straight record-breaking sessions. Sentiment took a hit after a post-earnings slide in Lululemon Athletica (LULU) and Nike (NKE) dragged down the consumer discretionary sector.
The tech-heavy Nasdaq Composite (COMP:IND) seesawed, last up 0.06% to 16,411.33 points by mid-day, while the blue-chip Dow (DJI) slipped 0.44% to 39,604.40 points. The S&P 500 (SP500) was lower by 0.12% to 5,235.26 points. The benchmark index had closed at a new high the past three days.
Of the 11 S&P sectors, eight were in the red.
The S&P (SP500) was also on track for its best week of 2024, having gained 2.31% so far. The Dow (DJI) was similarly on track to post its best weekly performance of the year, having advanced 2.30%. The Nasdaq (COMP:IND) was up 2.74%, looking to notch its second best week of the year.
The Federal Reserve has been one of the main drivers of this week’s gains. The central bank on Wednesday held interest rates steady for a fifth straight monetary policy meeting. More notably, officials bumped up their growth forecasts in the updated dot plot while reiterating an expectation for three rate cuts this year. Finally, Fed chair Jerome Powell in his post-decision press conference was much more dovish than anticipated.
According to the CME FedWatch tool, markets have upped their odds of a 25 basis point rate cut at the Fed’s June policy meeting to about 67%. Those odds were around 63% a day ago and 55% a week ago. The increased growth targets in the updated dot plot along with the reaffirmation of three rate cuts also led to a rise in hopes that the Fed will successfully be able to deliver a soft landing.
A global markets survey by Deutsche Bank on Friday found a “hard majority” for a soft landing. One question asked by the brokerage was “what level of soft landing is priced into various assets at the moment?”
“Since we last asked this in December last year the averages have gone up from 76% to 84% for equities and from 71% to 82% for credit. For the top 90-100% bucket, it’s gone up from 18% to 37% for equities and from 15% to 36% for credit in just over 3 months,” Deutsche Bank’s Jim Reid said. For reference, 0% meant not at all and 100% meant fully priced.
“You can read the overall results two ways. Either with the soft landing percentages in the low 80s there is further to go if it actually fully materializes or that on a risk/reward basis a lot is already positively priced in now, especially given where inflation currently is in the U.S.,” Reid added.
The Fed euphoria appears to have settled on Friday, with earnings reports from some big companies taking the spotlight. The apparel and footwear sectors were active after a pair of major reports.
Lululemon (LULU) slumped more than 17% and was the top percentage loser on both the S&P 500 (SP500) and the Nasdaq (COMP:IND), after the yoga wear maker issued current quarter and annual guidance that missed expectations.
Meanwhile, Nike (NKE) slid nearly 8% and was among the top percentage losers on both the S&P (SP500) and the Dow (DJI). The sportswear and footwear giant warned of a short-term revenue dip as it shifts its focus to innovation.
Conversely, FedEx (FDX) jumped about 8% and was the top percentage gainer on the S&P 500 (SP500). The parcel delivery giant – which is often seen as a global economic bellwether – delivered mixed quarterly results. However, the better-than-anticipated results from its Express segment coupled with upbeat management remarks cheered investors.
Turning to the fixed-income markets, Treasury yields were lower on Friday. The longer-end 30-year yield (US30Y) was down 4 basis points to 4.39%, while the 10-year yield (US10Y) was down 5 basis points to 4.21%. The shorter-end more rate-sensitive 2-year yield (US2Y) was down 4 basis points to 4.59%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
