Yields Spike, Tech Slides Despite Xi-Trump Summit
Stocks fell on Friday, bogged down by losses in technology stocks and a rise in U.S. Treasury yields, after a summit between President Donald Trump and Chinese President Xi Jinping ended and left traders worried about no major policy breakthroughs.
The S&P 500 shed 1.24% to end at 7,408.50, while the Nasdaq Composite slipped 1.54% to 26,225.14. The Dow Jones Industrial Average was down 537.29 points, or 1.07%.
Investors took profits in tech after the group saw sharp gains recently. Notably, Intel retreated 6%, while Advanced Micro Devices and Micron Technology lost 5.7% and 6.6%, respectively. Nvidia dropped 4.4%, while Cerebras Systems — which surged 68% Thursday after it began trading on the Nasdaq — shed 10%.
“The group has witnessed an extremely unsustainable move in recent weeks and remains vulnerable to profit taking regardless of the headlines,” wrote Adam Crisafulli of Vital Knowledge.
Microsoft was an exception, however. The stock was 3% higher after Bill Ackman said Friday that Pershing Square has built a position in the name.
Treasury yields jumped, pressuring stocks, with the 30-year rate topping 5.1%. A series of reports this week showed inflation was revving back up as oil prices remain elevated from the Middle East conflict. Higher rates could hit the high growth stocks the hardest.
Oil prices traded higher Friday. U.S. West Texas Intermediate futures rose 4.2% to settle at $105.42 per barrel, while international Brent futures settled up 3.35% to $109.26. That’s after Trump told Fox News that he is “not going to be much more patient” with Iran, adding that “they should make a deal.”
Investors were disappointed following the conclusion of the summit between Trump and Xi, as no major deals have been announced. The two agreed that the Strait of Hormuz must remain open, according to a U.S. readout that was shared by a White House official. But “the few headlines that did come out of the summit (like the Boeing orders) were underwhelming,” Crisafulli wrote.
Boeing shares extended their losses Friday, moving lower by 3% following a nearly 5% drop in the previous session, as investors were let down by Trump saying that China has agreed to buy 200 Boeing jets — just 50 more than the company had previously anticipated.
Thursday marked a winning session for the indexes. The Dow reclaimed the 50,000 level, and the S&P 500 closed above 7,500 for the first time.
Stocks have been on a record-breaking tear on a renewed fervor around artificial intelligence. While Argent Capital Management’s Jed Ellerbroek believes sentiment among investors “remains very optimistic overall,” a peek under the hood is showing that the broader market is lagging the largest tech companies, a divergence that is increasingly worrying some investors as it suggests a fragile rally.
“It doesn’t feel right to say that tech is just going to lead forever,” the portfolio manager said, noting that the “HALO” trade earlier this year saw tech stocks “shunned” in support of those in sectors such as consumer staples and materials. “One thing kind of popping up and driving the market is inherently more risky than if there were several things.”
Amalya Dubrovsky , Rian Howlett , Karen Friar and Grace O'Donnell of Yahoo Finance also report
US stocks sank on Friday, retreating from record highs as rising bond yields and inflation worries preyed on markets and investors were gauging the success of the Trump-Xi summit in China.
The tech-heavy Nasdaq Composite (^IXIC) slid 1.5%, dragged lower by a 4% decline in Nvidia (NVDA), which reports earnings next week, and pressure on other chip stocks.
The S&P 500 (^GSPC) fell 1.2% after surging to all-time closing highs on Thursday, while the Dow Jones Industrial Average (^DJI) lost 1%, or 530 points, and dropped back below 50,000 as stocks came under pressure.
Stocks pulled back as a global bond rout weighed on sentiment to end the week, with the benchmark 10-year Treasury yield (^TNX) climbing to 4.59%, and the 30-year yield (^TYX) reaching 5.13%.
Investors also assessed the geopolitical backdrop as President Trump concluded his visit with Chinese counterpart Xi Jinping in Beijing. The two-day summit struck a business-friendly tone, involving 16 top US executives and delivering new deals for the likes of Boeing (BA) and Nvidia (NVDA).
However, the diplomatic issues of Taiwan and Iran continued to lurk in the background. US officials hoped that China could help end the war with Iran by using its influence with its major oil supplier. Trump said China and the US “feel very similar about Iran,” but Xi struck a more measured tone.
The lack of progress toward peace has stoked concern about the conflict’s price pressures, shown in this week’s US inflation readings. Oil futures rose over 2%, with Brent (BZ=F) trading around $109 a barrel.
So the Xi-Trump summit happened and traders used it to sell the news.
Long bond rates keep inching higher and all of a sudden Wall Street is paying attention and decided to sell red-hot semis and other tech shares on Friday to buy energy and commodity stocks.
Still, for the week, while Energy outperformed all other sectors, Information Technology did manage to eke out a 1% gain (data source here):
As far as large cap shares, here were this week's top performers:
And the worst-performing large caps (full list here):
So what does inflation pressure mean for the Fed and stocks going forward?
Well, BCA's Chief EM/ China Strategist Arthur Budagyan posted this on LinkedIn earlier today:
I tend to agree, a 10-year above 4.5% will pose significant challenges for stocks but if earnings keep surprising to the upside, you never know, maybe there's more juice left to power stocks higher.
Next week, King Kong (Nvidia) reports, so let's see the reaction afterwards.
Below, CNBC’s “Halftime Report” Investment Committee debate whether it’s safe to buy the tech pullback.
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