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US stocks closed lower on Friday, ending a dull week of trading that saw little movement in the major indices. The tech sector was the main drag on the market, as investors worried about the impact of rising interest rates and slowing earnings growth on the high-flying sector.
The Dow Jones Industrial Average (DJIA) fell 0.2% to 35,601. The S&P 500 (SPX) dropped 0.6% to 4,521. The Nasdaq 100 (NDX) slid 0.8% to 14,892.
The technology sector (XLK) was the worst performer among the 11 S&P 500 sectors, losing 1.4%. The sector was hit by disappointing earnings results from Nvidia (NVDA), the largest chipmaker in the world. Nvidia reported lower-than-expected revenue and profit for the fourth quarter, and gave a weak outlook for the current quarter, citing supply chain challenges and regulatory hurdles.
Nvidia shares plunged 9.4%, dragging down other chip stocks such as Intel (INTC), AMD (AMD) and Qualcomm (QCOM). Nvidia also weighed on the “Magnificent Seven” (Apple AAPL, Amazon.com AMZN, Alphabet GOOGL, Meta Platforms META, Microsoft MSFT, Nvidia NVDA, and Tesla TSLA), the group of mega-cap tech stocks that have dominated the market in recent years.
The Magnificent Seven collectively lost 1.2% on Friday, and only two of them, Apple and Tesla, managed to post positive returns for the week. The group has been under pressure as investors rotate out of growth stocks and into value stocks, which are seen as more resilient to rising inflation and interest rates.
The value sector (RPV) outperformed the growth sector (RPG) by 0.7% on Friday, and by 1.8% for the week. The value sector was led by energy (XLE), which gained 1.3% on Friday and 4.4% for the week, as oil prices rose above $80 a barrel amid tight supply and strong demand.
The energy sector was also boosted by positive news from BP (BP) and its partners, who announced that they were close to completing the first phase of their offshore liquefied natural gas (LNG) project in Africa, a first for the two West African nations. The project, known as Greater Tortue Ahmeyim (GTA), is expected to produce around 2.3 million tonnes of LNG per year when operations commence later this year
The financial sector (XLF) was another bright spot, rising 0.8% on Friday and 2.2% for the week, as banks benefited from higher interest rates and improved economic outlook. Goldman Sachs (GS) increased its 2024 year-end S&P 500 price target to 5,200 on Friday, citing increased profit estimates and stronger earnings growth for the tech and communication sectors
The health care sector (XLV) was also in the green, gaining 0.3% on Friday and 1.1% for the week, as biotech stocks rallied on positive clinical trial results and merger and acquisition activity. Moderna (MRNA), the maker of one of the most effective COVID-19 vaccines, soared 12.4% on Friday after announcing that its vaccine was safe and effective against the Omicron variant, the latest mutation of the coronavirus
The market sentiment was also supported by the latest economic data, which showed that the US economy was recovering from the pandemic-induced slowdown. The Commerce Department reported that retail sales rose 0.6% in January, beating expectations and indicating strong consumer spending. The Labor Department reported that initial jobless claims fell to 199,000 in the week ended Feb. 12, the lowest level since 1969, signaling a robust labor market.
However, the market also faced some headwinds, such as rising inflation and geopolitical tensions. The Labor Department reported that the consumer price index (CPI) rose 7% in January from a year ago, the highest annual rate since 1982, driven by surging energy and food prices. The core CPI, which excludes food and energy, rose 5.5%, the highest since 1991.
The Federal Reserve, which has been under pressure to tighten its monetary policy to combat inflation, signaled that it was ready to raise interest rates as soon as March, and possibly four times this year. The Fed also said it would end its bond-buying program by March, two months earlier than previously planned.
The market also faced some geopolitical risks, such as the escalating tensions between Russia and Ukraine, and between China and Taiwan. The US and its allies have been trying to deter Russia from invading Ukraine, and have imposed sanctions and offered military aid to the former Soviet republic. China, meanwhile, has been increasing its military and diplomatic pressure on Taiwan, which it considers a breakaway province, and has warned the US and its allies not to interfere.
The market volatility Is expected to continue in the coming weeks, as investors await more earnings reports, economic data, and policy decisions. The market will also be watching the developments of the Omicron variant, which has been spreading rapidly around the world and has raised concerns about the effectiveness of the existing vaccines and treatments.
Despite the challenges, the market outlook remains positive for the long term, as the US economy is expected to grow at a solid pace this year, supported by consumer spending, business investment, and government stimulus. The S&P 500 is still up 3.4% year-to-date, and 19.8% over the past 12 months, outperforming most other major markets.
The market also offers opportunities for investors who are willing to diversify their portfolios and look for undervalued sectors and stocks. According to Morningstar, small-cap and value stocks still trade at attractive discounts, while tech and industrials are overvalued. The energy, communication, material, real estate, and utility sectors are also appealing, according to the research firm4.
The market Is also a testament to the resilience and innovation of the US businesses and consumers, who have adapted to the changing environment and overcome the challenges posed by the pandemic. The market is a reflection of the strength and dynamism of the US economy, which remains the largest and most influential in the world
Source: Bloomberg
