US stocks struggled to stay above water on Friday of last week. Pressure seemed to mount from online retail giant Amazon, Inc. (AMZN) announcing an unprecedented bid to buy Whole Foods (WFM) for a whopping $13.7 billion.
The news of the merger weighed heavily on other retailers in the US, sending the entire consumer staples sector falling more than 1.1%, thereby making it the worst performer out of the S&P 500’s eleven separate sectors.
For the week, the both the Nasdaq 100 ended essentially flat, and the S&P 500 and Down Jones ended up slightly. Although stocks bounced off their early-morning lows on Friday, weakness was definitely prevalent in the market. The Dow Jones Industrial Average managed to lead the pack by making a new all-time high on Thursday.
In terms of macroeconomic news, on Wednesday of last week the Federal Reserve raised its benchmark lending rate by a quarter of a percent, as expected. The reaction in the US stock market was initially mixed, but stocks mostly finished higher after the rate hike announcement.
On the fixed income side, the yields on the 30-year US treasury bond and the 10-year US Treasury Note absolutely soared in response to the rate hike. For precious metals, however, the result was the opposite. Spot gold saw an initial spike to $1,284.20 per ounce, but then it rapidly sold-off to settle around $1,260 per troy ounce. Generally speaking, rising interest rates make it more expensive to hold and purchase assets like gold, because borrowing money becomes more expensive and gold is a non yield-bearing instrument. As such, a gold sell-off in light of an interest rate hike is not overly unusual.
Besides the FOMC announcement and weekly jobless data, traders had difficulty finding other positive signals in a batch of economic data last week. “Aside from the weekly jobless claims, the majority of the economic data released this week–inflation, retail, housing–was below expectations,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. Moderate to weak economic data seems to have facilitated the decline for stocks.
Friday of last week was also what’s known as “quadruple-witching day,” where futures, futures options, index options, and individual stock options all expired on the same day. The famous JP Morgan analyst Marko Kolanovic, who accurately predicted many turbulent market days like August 24th, 2015, noted how over $1.3 trillion worth of S&P 500 options expired on Friday. As traders closed out and rolled their positions to accommodate for the expiration, market conditions were likely altered during Friday’s trading. This also likely led to increased volatility and unusual trading activity in the market.
Looking ahead, there are a host of potentially market moving events this week. Minutes from the Bank of Japan will be released later this evening, and the Reserve Bank of New Zealand will make an announcement on Tuesday regarding its Official Cash Rate.
Moreover, traders in the US will be eyeing monthly jobless claims data as well as retail sales data in an attempt to gauge where the economy is heading. However, if economic data keeps coming in below expectations, further weakness in the equity market could easily spark a rally in safe haven assets like gold. Even with an interest rate increase, gold showed its strength and beauty as an investment by managing to close out the week above $1,250 per ounce.