US stocks closed higher on Friday (Aug 21) despite a decline for the week, as Wall Street reacted to government bond yields and Middle East tensions.
Treasury Buybacks Calm Markets
Stocks snapped three-week winning streaks on Friday, though the S&P 500 and the Nasdaq still finished lower for the week. The Dow Jones Industrial Average registered its second consecutive weekly loss. Equity investors have been closely watching the direction of US government bond yields, which have recently dampened risk appetite.
Treasury Secretary Scott Bessent said on Thursday that the government could further increase its Treasury repurchases after a surprise announcement on Wednesday that it would spend double the expected amount on bond buybacks. This move appears to have helped ease some of the jitters.
“In the middle of the week, equity investors were concerned yields could be on a one-way trip higher,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “With the Treasury Department announcement, investors aren’t as worried any more.”
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Service Sector Strength
Friday’s economic data also provided support, showing the strongest growth in the US services sector in nearly two years. This activity powered a sharp acceleration in overall business activity in August. However, growth in the manufacturing sector slowed, largely due to reduced stock building and supply disruptions from the Iran war.
UBS Global Wealth Management raised its year-end target for the S&P 500 to 8,100, citing a stronger earnings outlook and robust corporate profit growth. Oil futures settled higher for a sixth straight day after US President Donald Trump threatened economic sanctions on Iran’s trading partners, raising expectations of tighter supply. Brent futures gained 6.4 per cent for the week while US crude rose 5.7 per cent.
Weekly Performance and Sector Gains
For the week, the S&P 500 fell 1.4 per cent, the Nasdaq declined 2.1 per cent, and the Dow fell 0.9 per cent. The Russell 2000 small-cap index fell 1.7 per cent for its biggest drop since the week starting Jun 1.
Most S&P 500 sectors advanced on Friday. Materials outperformed with a 2.2 per cent advance, followed by a 1.3 per cent advance in healthcare and a 1 per cent gain in financial stocks. Utilities was the biggest laggard, finishing down 2.3 per cent.
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Individual movers included Ross Stores, which finished up 4.4 per cent after raising its annual profit forecasts. The retail investor platform Robinhood rallied 13.7 per cent, while Coinbase Global climbed 8.2 per cent as Bitcoin advanced to its highest levels since mid-May.
Market Data and Outlook
Advancing issues outnumbered decliners by a 1.68-to-1 ratio on the New York Stock Exchange, where there were 214 new highs and 118 new lows. On the Nasdaq, 3,186 stocks rose and 1,725 fell as advancing issues outnumbered decliners by a 1.85-to-1 ratio.
Investors are waiting for quarterly results from artificial intelligence chip leader Nvidia and software companies such as Intuit, Salesforce and CrowdStrike next week. The data releases include July’s Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation gauge. Tame July readings for consumer and producer prices had knocked down bets of an imminent central bank rate hike. Investors are also waiting for Fed chair Kevin Warsh’s speech at the Jackson Hole symposium at the end of next week.