The major domestic benchmarks closed mixed last week after a downturn Friday drained earlier gains. The large-cap indexes recorded losses, while the tech-heavy Nasdaq and the smaller-cap benchmarks moved modestly higher. The S&P MidCap 400 set a new record high at midweek, as did the broadest market benchmarks, the Russell 3000 and Wilshire 5000. Within the S&P 500, technology and Internet-related shares fared best, while the typically defensive consumer staples and real estate segments lagged. Growth stocks handily outpaced value. Before spiking again Friday, market volatility continued to moderate, with one measure showing it dipping to its lowest level since late January.
The ongoing favorable tone of second-quarter earnings reports appeared to give the market its momentum early in the week. According to the latest available data from FactSet, earnings for the S&P 500 are anticipated to have grown 24.6 percent over the same quarter a year ago — well above estimates before the start of the earnings reporting season and roughly in line with first quarter levels, which were the strongest in nearly eight years.
The week’s most bizarre event had nothing to do with earnings. Shares in electric car maker Tesla jumped on Tuesday after CEO Elon Musk tweeted that he had secured funding and was considering taking the company private in what would be the largest leveraged buyout in history. The stock fell back over the following two days, however, as no details were forthcoming and many questioned how substantive Musk’s claim really was.
Another round of trade disputes (if from a novel direction) appeared to be behind the market’s pullback on Friday. In retaliation for Turkey’s jailing of an American pastor, President Trump announced in a tweet that the U.S. was doubling its tariffs on steel and aluminum imports from there. A broad decline in the Turkish lira and other emerging market currencies weighed on Wall Street alongside other global markets. Meanwhile, tensions between the U.S. and China continued to simmer, with China announcing new tariffs on $16 billion worth of goods imported from the U.S.
U.S. producer prices were unchanged in July for the first time in seven months as a modest increase in the cost of goods was offset by a drop in services, but underlying producer inflation continued to push higher. The unchanged reading followed a 0.3 percent increase in June. In the 12 months through July, the PPI advanced 3.3 percent, slowing after June’s 3.4 percent increase. The consumer-price index rose 0.2 percent in July, as rising shelter costs offset a decline in energy prices. The increase in the CPI over the past 12 months was 2.9 percent, unchanged from June. After stripping out volatile gasoline and food, the more closely followed core rate of inflation rose 0.2 percent last month. The 12-month rate of core inflation rose to 2.4 percent, the highest rate since September 2008.
The federal deficit, or the difference between the amount of money the federal government spent and what it took in, totaled $684 billion in October through July, the Treasury Department announced Friday. That was 21 percent more than during the same period a year earlier. A modest flight to the perceived safety of U.S. Treasuries on Friday helped bring the yield on the benchmark 10-year U.S. Treasury note down to its lowest level in nearly a month, closing the week at 2.88 percent.
Most European equities ended last week lower amid fresh trade war angst and concerns late in the week about the ramifications of Turkey’s plummeting currency on European banks. Mixed corporate earnings results also weighed on some market sectors. The pan-European STOXX 600 Index ended the week lower by about 0.5 percent. The German DAX 30, which is highly reactive to global trade uncertainty, France’s CAC 40, and Spain’s IBEX 35 all fell about 1.5 percent for the week.
Chinese currency slid for the ninth-straight week as a global currency sell-off triggered by Turkey’s financial troubles compounded worries about China’s trade fight with the U.S. After rising earlier in the week, the yuan erased its gains on Friday amid fears that Turkey’s currency woes could spill over onto the mainland. Elsewhere in Asia, Japanese stocks fell on Friday, leading to a loss for the week and for 2018 thus far.