U.S. stocks were slightly higher on Friday in choppy trade, with the Dow Jones Industrial Average attempting to extend a winning streak to 10 days, while investors prepared for a major rebalancing of the Nasdaq-100 index and the expiration of trillions of dollars of stock option contracts, as technology shares were struggling to claw back losses in the previous session.
What are stocks doing?
-
The Dow Jones Industrial Average
DJIA,
+0.16%
rose 40 points, or 0.1%, to 35,265, after dipping into negative territory. -
The S&P 500
SPX,
+0.23%
was up 5 points, or 0.1%, at 4,540. -
The Nasdaq Composite
COMP,
+0.06%
shed 15 points, or 0.1%, to trade at 14,047.
What’s driving markets
Investors were watching to see if the Dow Jones Industrial Average can rise for a 10th straight session, or if the blue-chip gauge will end what has been its best winning streak in nearly six years at nine straight sessions.
The “catch-up” rally in the Dow industrials has occurred in spite of sporadic weakness in market-leading technology shares over the past couple of weeks.
Tavi Costa, portfolio manager at Crescat, told MarketWatch in an interview that it’s an early sign of a rotation to value from richly valued growth names.
“I think we’re seeing the beginning of potentially a larger move to the downside that will be driven by tech and megacap stocks,” Costa said.
Barring a sizable selloff, most U.S. stocks look set to finish higher again this week, even as individual stocks at times responded poorly to results from companies like Netflix
NFLX,
Taiwan Semiconductor Manufacturing
TSM,
Tesla
TSLA,
and IBM
IBM,
The S&P 500 is on pace to log a 0.9% weekly gain, while the Dow industrials has risen 2.2% but the Nasdaq Composite was off 0.4% for the week, according to Dow Jones Market Data.
Corporate earnings reports for the second quarter have been mixed so far. About 75% of S&P 500 companies that have already reported exceeding analysts’ expectations, according to FactSet data, though overall earnings are likely to fall for the third quarter in a row. The fourth quarter last year saw profits down 4.7%, the first quarter this year saw a fall of 2.0%, and the current quarter is forecast to see earnings fall 9.6%.
“The current market is priced for perfection. When a company comes out, beats, and guides higher, it still can go down if there are any concerns or worries,” said Louis Navellier, the chairman and founder of Navellier & Associates, pointing to Tesla’s results in particular.
“There also seems to be a little anxiety on some of the top tech stocks as they are going to get a haircut on Monday on the Nasdaq realignment,” added Navellier. Nvidia
NVDA,
and Microsoft
MSFT,
are the most affected by the Nasdaq rebalancing.
See: Nasdaq rebalancing is coming, and it’s boosting interest in Friday’s $2.3 trillion option expiration
Navellier was referring to the Nasdaq-100 index rebalancing, which will take place Friday after the close and be effective for Monday’s open, as well as the expiration on Friday of some $2.3 trillion of U.S.-listed options.
“When there are a lot of positions out there that need to be readjusted, you could see some of that movement flow into the stock market. These days there are a lot of people speculating on options, open interest is higher than usual,” said Callie Cox, U.S. investment analyst at eToro, during a phone interview with MarketWatch.
“On option expiration days, you need to be on guard for bigger moves, there’s a lot happening below the surface,” she added.
“Given the volume of stock, we expect there to be for sale in the top-heavy Nasdaq 100, coupled with the performance of these mega cap tech names in 2023, there’s a chance we could see some exacerbated downside moves along with elevated volatility for most of Friday’s trading session,” said Greg Bassuk, chief investment officer at AXS Investments.
However, investors may also find a unique opportunity to take advantage of potential selling pressure in Nvidia
NVDA,
and Tesla
TSLA,
by using tactical trading tools such as the the AXS TSLA Bear Daily ETF
TSLQ,
and AXS 1.25X NVDA Bear Daily ETF
NVDS,
said Bassuk.
See: Everyone thinks the Fed’s rate hike next week will be the final one — except the Fed
Investors are also looking ahead to next week’s meeting of top Federal Reserve policy makers, where traders expect the Fed will raise interest rates for the 11th — and possibly final — time this cycle.
The Fed will meet next Tuesday and Wednesday. The central bankers will release a policy statement announcing their decision Wednesday at 2 p.m. Eastern at the end of their discussions. Powell will hold a press conference at 2:30 p.m..
Companies in focus
-
Dow component American Express
AXP,
-3.31%
fell 3.4% on Friday after reporting net income of $2.17 billion, or $2.89 a share, compared with $1.96 billion, or $2.57 a share, in the year-earlier quarter. Analysts tracked by FactSet were looking for $2.81 a share. -
AutoNation Inc.’s stock
AN,
-10.29%
dropped 10.3% after the new and used car retailer posted better-than-expected second-quarter earnings. -
Shares of Regions Financial Corp.
RF,
-4.34%
were 4.6% lower after reporting Friday second-quarter profit that was in line with expectations as revenue rose slightly above views, and as deposits dropped more than 8%. -
CSX Corp
CSX,
-4.14%
shares fell 4.1% after the railroad operator reported second-quarter sales that missed expectations, dragged by lower fuel and coal prices and weaker shipping volumes. -
Schlumberger Ltd.
SLB,
-2.37%
shares shed 2.3% Friday, after the oil driller reported second-quarter profit that topped expectations but revenue that came up a bit short.
Steve Goldstein contributed
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