Monday’s rally gave way to selling pressure as economic and monetary policy reports dominated the news, while Friday’s bank earnings reports closed the week on a bullish note.
Federal Open Market Committee (FOMC) minutes released on Wednesday revealed increasing support for a future interest rate hike among voting members with a debate largely over timing. Interest rates and the U.S. dollar rallied on the news.
The European Central Bank’s (ECB) bond-buying program garnered headlines this week with rumors of possible tapering, though officials have yet to confirm which of several plans will be implemented. An end to the ECB’s QE program could be bearish for the U.S. dollar and bonds.
Hawkish Fed sentiment and uncertainty regarding an ECB taper sent major averages lower on the week. The S&P 500 Index fell 1 percent, while the U.S. dollar index rose more than 1 percent.
The dip in the market was limited by bank earnings reports when major financial institutions Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) reported quarterly earnings. Citigroup delivered earnings and revenue numbers that beat expectations on strong bond trading revenues. The firm has been shrinking its retail banking business and growing its trading division. Shares immediately climbed 2 percent on the news. Shares of JPM also rose as trading revenue easily topped Wall Street forecasts. Fixed income trading increased 48 percent with interest rates increased and a spike in bond market volatility. Despite its recent troubles, WFC also delivered earnings and revenue numbers that exceeded estimates, but shares barely moved in the wake of the recent scandal. SPDR Financial Select Sector ETF (XLF) advanced 0.47 percent on Friday, while SPDR S&P Regional Banking (KRE) did even better, climbing 0.5 percent.
The price of a barrel of West Texas Intermediate Crude climbed above $51 per barrel on news of possible OPEC production cuts before falling back after an unexpected build in crude oil inventories. Prices dropped $2 per barrel mid-week before recovering the loss. Shares of the Energy Select Sector SPDR ETF (XLE) were relatively unchanged on the week as the stronger U.S. dollar weighed on expectations.
On Wednesday, the August Job Openings and Labor Turnover Summary (JOLTS) came in slightly weaker than expected. The forecast was for 5.72 million job openings, but the actual figure was 5.4 million, which was an eight-month low. Chinese trade figures also missed expectations. Mortgage applications fell 6 percent as interest rates rose on 30-year fixed-rate home loans. Eurozone industrial production for August grew 1.6 percent, once again dispelling fears over Brexit. Weekly unemployment claims were stable at 246,000 and remain near 43-year lows. Friday’s Producer Price Index (PPI) for September came in slightly higher than anticipated at 0.3. September retail sales met expectations with a 0.6 percent increase with solid auto sales.
Alcoa (AA) reported earnings Tuesday, just a few weeks before the company will split into two independently traded public companies. The lightweight metals manufacturer delivered earnings and revenues that missed expectations and shares of the company fell 15 percent on the news. Shares of major airline and Dow Transportation component Delta (DAL) rallied after it reported a 4.4 percent drop in net earnings that beat analyst estimates. Taiwan Semiconductor (TSM) also beat forecast estimates. Shares were down slightly this week with a pullback in the semiconductor sector.