Wall Street reversed its losses on Friday as technology shares advanced and US government bond yields slid.
The blue-chip S&P 500 index, which opened 0.3 per cent lower, was up 0.2 per cent by mid-afternoon. The Nasdaq Composite recovered from a similar loss on Friday morning to advance 0.9 per cent. The tech-heavy index had tumbled 3 per cent the day before when the yield on the 10-year US Treasury note briefly topped 1.75 per cent.
For the week, the S&P 500 and Nasdaq Composite were on track to post declines of 0.4 per cent and a 0.7 per cent respectively.
Friday’s gains come as stock markets prepare for “quadruple witching” — a day that brings the simultaneous expiration of stock index futures, stock index options, stock options and single stock futures and drives high volumes that can sharply move markets in the final hour of trade.
Peter Boockvar, chief investment officer at Bleakley Advisory Group, attributed the moves to “expiration noise”, but added that “the buying-on-the-dip mentality doesn’t die easily notwithstanding the sharp rise in longer-term interest rates over the past few months”.
Meanwhile, the yield on the 10-year Treasury retreated 0.01 percentage points to 1.719 per cent.
US Treasuries had initially sold off again on Friday after the Federal Reserve said it would not extend a loosening of bank capital requirements that it introduced in March last year to help soothe the bond market at the peak of the Covid-19 crisis.
The decision weighed on bank stocks, with the S&P 500 financials sector down 0.9 per cent.
Still, the Fed’s promise to explore a more permanent overhaul to the supplementary leverage ratio rules to prevent strains in the Treasury market and broader financial system could “soften the adverse impact” on yields, said Kathy Bostjancic, economist at Oxford Economics.
In Europe, the region-wide Stoxx 600 index lost 0.8 per cent and Germany’s Xetra Dax dropped 1.1 per cent, while the UK’s FTSE 100 fell 0.9 per cent.
Declines across stock markets in Europe and Asia were spurred by this week’s rise in US Treasury yields, which borrowing costs in many financial markets are benchmarked against. Rising yields, which reflect falling demand for bonds, have forced investors to reprice the value of high-growth shares to reflect changes in future earnings expectations.
This sell-off in sovereign debt was also “spilling into wider markets”, said Robert Carnell, head of Asia-Pacific research at ING, pointing to declines in the price of gold and oil.
Since the start of this year the price of the precious metal is down more than 8 per cent. However, the price of oil fluctuated on Friday and rose towards the end of European trading.
Brent crude, the international benchmark, rose 1.8 per cent to $64.45 a barrel after dropping 7.6 per cent overnight. West Texas Intermediate gained 2 per cent to $61.23 a barrel after closing down 7.1 per cent on Thursday, the US marker’s biggest one-day fall in six months.
In Asia, China’s CSI 300 index of Shanghai and Shenzhen-listed stocks closed down 2.6 per cent, while Hong Kong’s Hang Seng dropped 1.4 per cent and South Korea’s Kospi index lost almost 1 per cent.
In Japan, the benchmark Nikkei 225 fell 1.4 per cent while the Topix, another share index, gained 0.2 per cent. The moves came as the central bank scrapped its pledge to buy an average of ¥6tn ($55.2bn) a year in equities following its biggest policy review since 2016.
The divergence between the two indices followed the Bank of Japan’s announcement that it would concentrate its exchange traded fund purchases solely on those that track the Topix. The Nikkei 225 was led lower by Fast Retailing, the parent of the clothing chain Uniqlo, which has a large weighting in that index.
Investors are also keeping an eye on the first high-level meeting between US and Chinese officials since US president Joe Biden took office, which began in Alaska with fiery exchanges between the two powers.
Additional reporting by Leo Lewis in Tokyo