Stocks up for week, eye dollar, rate spike
The U.S. stock market finished lower Friday but higher for the week as Wall Street heads into a holiday-shortened week when the focus will be on a slew of economic data and fresh scrutiny of a suddenly surging U.S. dollar and rising interest rates.
The past week on Wall Street centered on competing forces as the domestically focused small-company Russell 2000 stock index continued its hot streak, hitting another record high Friday and extending its winning streak to 11 sessions. Similarly, the tech-heavy Nasdaq notched an intraday record Friday.
Still, fresh headwinds emerged in the form of an appreciating U.S. currency and a sell-off in the U.S. government bond market that sent the 10-year Treasury note yield, which moves in the opposite direction of price, soaring to its highest intraday level (2.351% at its high point Friday) since Dec. 4, 2015, according to Tradeweb.
Stocks finished the week mixed. The Nasdaq closed down 12.46 points, or 0.2%, to 5321.51, after setting an all-time intraday high of 5346.80. The Standard & Poor’s 500 fell 5.22 points, 0.2%, to 2181.90, but remained within striking distance of its record closing high of 2190.15 set Aug. 15. The Dow Jones industrial average, which set a record high this week, closed down 35.89 points, or 0.2%, to 18,868. All the major stock indexes posted gains for the week.
A recent rally sparked by bullishness about President-elect Donald Trump’s potential pro-growth fiscal policies helped pushed stocks back toward record levels. Friday's trading was subdued as investors pulled back and focused on remarks Thursday from Federal Reserve Chair Janet Yellen that pointed to a hike in interest rates next month. The Fed raised its key interest rate in December 2015, but it’s still at ultra-low levels that have fueled a multiyear global stock market boom. The minutes of the Fed's meeting Nov. 1-2 will be released Wednesday.
Fueling the stock rally has been a massive rotation out of bonds and into stocks. Fund flows to U.S.-stock mutual funds and exchange-traded funds totaled more than $25 billion in the week of Nov. 10-16, according to Bank of America Merrill Lynch, the biggest weekly inflows since December 2014. In contrast, more than $9 billion poured out of bond funds, the worst weekly outflows since June 2013 during the "Taper Tantrum" when the Fed first hinted that it would begin curtailing its purchases of government bonds, a strategy designed to keep rates low.
Yellen: Trump plan may stoke inflation, debt
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The dollar is emerging as a key story for investors. The greenback has rallied sharply since Election Day on the prospect of higher U.S. interest rates, wider budget deficits and higher inflation in the USA amid Trump's promises to borrow and spend to boost the U.S. economy. It climbed Friday to 110.92 yen — its highest level since the end of May — from 110.17 yen in Thursday's trading. The euro fell to its lowest in nearly a year, sinking to $1.0592 from $1.0614.
A strong dollar is causing some angst as it makes U.S. products sold abroad more expensive, which could hurt sales and profits of U.S. multinationals.