Three-Week Rally Comes to an End as Tech Shares Slide
Investors returned from the extended Labor Day weekend in a selling mood, pulling stocks away from last week's record highs. The S&P 500 ended the week with a loss of 1.0%, while the tech-heavy Nasdaq Composite dropped 2.6%. The Dow Jones Industrial Average showed relative strength, but still finished lower by 0.2%.
The week kicked off with Amazon (AMZN) becoming the second U.S. company, after Apple (AAPL), to reach a market cap of $1 trillion and with Nike (NKE) unveiling a controversial ad for the 30th anniversary of its "Just Do It" campaign that features Colin Kaepernick, the former San Francisco 49ers quarterback credited with starting the national anthem protests. Amazon soon fell back after touching the $1 trillion milestone on Tuesday though, ending the week with a market cap of $952 billion.
On the Gulf Coast, residents braced for Tropical Storm Gordon to make landfall, which it did on Tuesday evening. Oil prices rallied in anticipation of the storm disrupting crude production, but gave back all of those gains after the storm turned out to be less damaging than feared. Oil prices then fell further on Thursday when the EIA's weekly inventory report showed a 4.3 million barrel drop in crude stockpiles, but a 1.8 million barrel jump in inventories of gasoline. In total, WTI crude futures lost 2.9% this week, settling Friday at $67.76/bbl, and the oil-sensitive energy sector lost 2.3%.
The top-weighted information technology sector also underperformed this week, dropping 2.9%. Within the group, social media names were in focus after Facebook's (FB) COO, Sheryl Sandberg, and Twitter's (TWTR) CEO, Jack Dorsey, testified before the Senate Intelligence Committee on Wednesday morning, defending their efforts to prevent election meddling. Mr. Dorsey also appeared before the House Energy and Commerce Committee in the afternoon, rebuking allegations that Twitter promotes certain political ideologies. The hearings didn't produce any new information of note, but that didn't prevent Facebook and Twitter shares from tumbling 2.3% and 6.1% on Wednesday, respectively.
On the trade front, U.S.-China trade tensions resurfaced at the tail end of the week, as many thought the White House would impose tariffs on $200 billion worth of Chinese goods on Thursday at midnight following the end of a public comment period. That didn't happen, but President Trump did raise the stakes on Friday, saying that he's got another tranche of tariffs on $267 billion of Chinese goods "ready to go" if Beijing retaliates to the $200 billion tranche.
On a related note, trade talks between the U.S. and Canada resumed this week after the two sides failed to reach an agreement last Friday, but investors were skeptical that a deal would get done after President Trump tweeted on Saturday that there's "no political necessity to keep Canada in the new NAFTA deal." As of Friday's closing bell, officials still had not reached an agreement.
In economic data, the Employment Situation report for August crossed the wires on Friday morning, causing some knee-jerk selling due to a higher-than-expected increase in average hourly earnings (+0.4% actual vs +0.2% Briefing.com consensus), which ignited some fears that inflation might be picking up. However, the realization that the economy is still strong, evidenced by a larger-than-expected increase in nonfarm payrolls (+201K actual vs +187K Briefing.com consensus) and an unemployment rate of 3.9%, helped keep losses in check.
As for the Fed, Friday's jobs report virtually locked in a September rate hike and increased the chances of a December rate hike to 79.8% from 72.8% on Thursday.