Stocks on both sides of the Atlantic met their worst weekly performance in at least a month on Friday, as optimism over earnings season was tempered by fears about the rapid spread of the Delta variant of coronavirus.
Wall Street’s S&P 500 fell 0.8 per cent on Friday in New York, ending the week down 1 per cent, the benchmark’s worst weekly performance since mid-June. The tech-focused Nasdaq Composite similarly slid 0.8 per cent, dropping a total of 1.9 per cent since Monday.
The sell-off “isn’t at all surprising given the backdrop of weakening market internals and stretched price action”, said Matt Orton, director and portfolio specialist for Carillon Tower Advisers.
Caroline Simmons, UK chief investment officer for UBS’s wealth management unit, added: “Concerns about the Delta variant are weighing, and while we’re coming into an earnings season that is going to be good, there’s a tussle between those two factors.”
Analysts expect companies listed on the S&P 500 to report average earnings-per-share growth of 66 per cent in the second quarter compared with the same time last year, forecasts collated by Credit Suisse show. Companies listed on MSCI’s European equity index are forecast to achieve 109 per cent earnings growth overall, according to WisdomTree.
“We should be prepared for a bumpy summer on markets,” said Gregory Perdon, co-chief investment officer at the private bank Arbuthnot Latham.
“It’s traditionally a time when there is less risk taking, less [trading] volume, less activity,” he added, “and we are not going to get much clarity on the intentions of the US central bank in the coming few weeks.”
Yields on the 10-year US Treasury note registered their third weekly decline, remaining little unchanged on Friday at 1.3 per cent.
After starting the week at close to 1.42 per cent, the yield was driven lower by haven-buying and reassurances by Jay Powell, Federal Reserve chair, that the current high rate of US inflation, which erodes bonds’ fixed income returns over time, would subside.
But inflation fears resurfaced on Friday after data showed US retail sales increased by a higher than expected 18 per cent in June from the same month last year.
“Markets may be digesting a bit of ‘peak reopening’ growth, both in the economy and in earnings. Thus we have seen the sharpest sell-off in the cyclical/economically sensitive sectors like energy, financials, and industrials,” said Mona Mahajan, Allianz US senior investment strategist, adding that lower bond yields were also an indicator of investor skittishness as pent-up demand sends prices surging.
Kristina Hooper, Invesco Chief Global Market Strategist, said “markets often get queasy during this period” as the Fed prepared to transition to the start of normalisation, adding: “But that does not mean the bull market is anywhere near over.”
Across the Atlantic, stocks also ended the week lower with the continent-wide Stoxx Europe 600 down 0.3 per cent on Friday for a weekly fall of 0.6 per cent.
Frankfurt’s Xetra sank 0.6 per cent while London’s FTSE 100 slipped 0.1 per cent, taking its fall since Monday to 1.6 per cent, the index’s biggest drop in four weeks.
A 40 per cent jump in coronavirus infections in England in the week to July 10 meant the UK economy would hit “slowing growth momentum”, said Sanjay Raja, an analyst at Deutsche Bank, as “all signs point to voluntary social distancing constraining demand over the coming months”.
Brent crude, the global oil benchmark, fell 0.4 per cent to $73.21 a barrel, after climbing by 0.3 per cent earlier in the day as Saudi Arabia and the United Arab Emirates neared a deal that could unlock an agreement by Opec and its allies to raise production.
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