U.S. stocks closed mixed Friday, pressured by a plunge in biotechs, as investors digested Nike earnings and Fed Chair Janet Yellen’s remarks.
The Nasdaq composite closed down 1 percent after falling more than 1.5 percent in afternoon trade, pressured by decline of nearly 5 percent in the iShares Nasdaq Biotechnology ETF (IBB) (IBB).
IBB had its worst day since April 2014, falling in record trade volume to below its closing low from the Aug. 24 “flash crash.” The index closed in bear market territory, or more than 20 percent below its 52-week high. Forty-five percent of the Nasdaq 100 also closed in bear market territory.
Apple (AAPL) closed down 0.2 percent on the day but posted a 1.12 percent gain for the week.
“Often folks aren’t eager to take on risk over the weekend,” said Michael Arone of State Street Global Advisors. “Biotech — I think this is a little bit of an overreaction in a market where growth is scarce, valuations that are reasonably valued.”
IBB had its worst day in 2015 on Monday after a tweet from Hillary Clinton raised concerns about “price gouging.”
Armored Wolf Managing Director Bradd Kern is short IBB and said “further biotech downside is inevitable” based on expectations that more than 65 percent of the fund names will lose money in 2016.
“Biotech has attracted a lot of performance-chasing investors over the last couple of years, both on the retail and institutional side,” he said. “Retail money has flooded into the ETF, and institutional investors have talked themselves into overweight positions without any consideration of fundamental investing principles, namely valuation.”
The SP 500 closed 0.05 percent lower as a 2.70 percent decline in health care more than offset a 1.45 percent gain in financials. The regional banking stock index also gained 1 percent.
The dollar index hit its highest intraday level since Aug. 19 before trimming gains.
Declines in United Health (UNH) and Johnson Johnson (JNJ) put the greatest pressure on the Dow Jones industrial average.
The blue chip index closed 113 points higher, with Nike (NKE) jumping 9 percent to contribute about 66 points. Earlier, the index gained as much as 263.91 points, or more than 1.5 percent.
Nike reported earnings after the close Thursday that beat on both the top and bottom line, higher prices and strength in the China market.
“I think the great numbers from the Chinese business certainly help, help underscore that growth in China is not collapsing, that the consumer side is doing OK,” said David Lefkowitz, senior equity strategist at UBS.
Stocks opened higher and tried to hold gains after three straight days of losses.
“Obviously Yellen’s comments last night put us back on track for a rate hike this year so that’s positive for the market,” said Peter Cardillo, chief market economist at Rockwell Global Capital.
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Yellen said in a speech after the close Thursday that she personally anticipates a hike this year .
“I think it gave a lot of people confidence that they didn’t have to worry about the global condition, given the volatility in the last couple of days,” said Alan Rechtschaffen, financial advisor and senior vice president at UBS Wealth Management Americas.
“She’s a consensus builder. If she’s out there saying it she feels she has consensus. Although it’s her personal conviction she’s a strong believer in not going against the flow,” he said.
The Dow remained in correction territory, or more than 10 percent away from its 52-week high. The Nasdaq also fell back into correction mode, while the SP 500 was about 9.5 percent away from its 52-week high.
All three major averages are negative for 2015 and posted weekly losses.
“When you’re looking at a market that’s healing sometimes you don’t want to see it go up right away,” said Quincy Krosby, market strategist at Prudential Financial. She noted that a sharp jump after a few days of declines might be viewed as an unsustainable “dead cat bounce” and create “worry we go down again.”
“The earnings season is absolutely critical for the direction of the market,” she said.
Stocks closed well off their lows Thursday, with the Nasdaq and SP 500 holding out of correction territory, or remaining within 10 percent of their 52-week highs.
“From a technical perspective we managed to hold the lower range of the trading range (Thursday),” Cardillo said, noting some “early window dressing” and short covering as September and the third quarter come to an end next Wednesday.
Kate Warne said markets were focused on Yellen’s remarks more than morning news that Speaker of the House John Boehner would resign at the end of October.
“The shutdown in Washington could roil markets next week,” she said. “People are putting that off because they don’t know whether we know what will happen until the last minute. I think this time we know it’s going to go down to the wire.(Boehner’s resignation makes it more likely). With Boehner resigning, although not until next month, it clearly reflects on lack of Republican (consensus) in the House. It makes it more likely that there’s a temporary government shutdown… and it would tend to trigger a negative market reaction but fortunately that doesn’t tend to last very long.”
Treasury yields held higher, a touch off session highs, with the 10-year yield (U.S.:US10Y) at 2.16 percent and the 2-year yield (U.S.:US2Y) at 0.70 percent.
Traders cited some concern about government shutdown and later a debt ceiling fight following Boehner’s announcement.
“It adds some uncertainty and depending on how the battle is going to go, it could even bring the Fed into question…we’re off the lows,” said David Ader,CRT Capital, chief treasury strategist.
Lance Roberts, head of Streettalklive.com, said a key focus is “the posturing and threats from the Administration will likely cause additional market angst given an already weak market. This was the same backdrop as 2011 when we debated over the debt ceiling then.”
The U.S. dollar traded higher against world currencies, with the euro below $1.12 and the yen near 120.7 yen against the dollar.
Kansas City Fed President Esther George on Friday said she believes the Fed should raise interest rates soon so that it will “have the luxury” of being able keep rate hikes gradual.
On the data front, the second revision for second-quarter GDP was revised higher to 3.9 percent , boosted by stronger consumer spending and construction.
Consumer sentiment fell for the third straight month in September to 87.2, the lowest in nearly a year.
“I would think we focus on the last 45 minutes of trading,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. “If it’s positive then we can feel good about next week.”
In Europe, the pan-European Stoxx 600 index (^STOXX) closed nearly 3 percent higher, helped by some recovery in auto stocks. In Asia, the Shanghai Composite (Shanghai Stock Exchange: .SSEC) index closed down 1.62 percent, while Japan’s Nikkei (Nihon Kenzai Shinbun: .N225) finished 1.76 percent higher.
Volkswagen (XETRA:VOW3-DE) ended 4.3 percent lower. After the local close, the carmaker officially named Porsche boss Matthias Mueller its new CEO .
On the earnings front, BlackBerry (Toronto Stock Exchange: BB-CA) and Finish Line (FINL) both posted results before the bell.
BlackBerry plunged 7.48 percent after the struggling handset maker reported earnings that missed significantly on both the top and bottom line. The firm also projected “modest” sequential quarterly revenue growth for the rest of fiscal 2016.
Finish Line closed down nearly 20 percent after the athletic apparel and footwear retailer missed on revenue. Same-store sales rose 1.5 percent.
The Dow Jones Industrial Average (Dow Jones Global Indexes: .DJI) closed up 113.35 points, or 0.70 percent, at 16,314, with Nike leading advancers and United Health (UNH) the greatest decliner. The index ended the week 0.43 percent lower. Nike was the best performer for the week, while Caterpillar was the worst.
The Dow transports closed up 0.89 percent, but down 2.31 percent for the week.
The SP 500 (^GSPC) closed down 0.90 points, or 0.05 percent, at 1,931.34, with health care leading three sectors lower and financials the greatest advancer. The index ended the week down 1.36 percent, with health care the worst weekly performer and utilities the best.
The Nasdaq (^IXIC) closed down 47.98 points, or 1.01 percent, at 4,686.50, down 2.92 percent for the week.
The CBOE Volatility Index (VIX) (^VIX), widely considered the best gauge of fear in the market, held near 23.
About eight stocks declined for every seven advancers on the New York Stock Exchange, with exchange volume of 975 million and composite volume of 3.7 billion in the close.
High-frequency trading accounted for 49 percent of September’s daily trading volume of about 7.2 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.
Crude oil settled up 1.7 percent at $45.70 a barrel. Gold futures ended down $8.20 at $1,145.60 an ounce.
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