US stocks open lower as traders brace for volatility ahead of monthly options expiry

US stocks traded lower on Friday as more than $2 trillion in equity-linked options expired as investors digested more hawkish comments from the Federal Reserve.

How are stock index futures traded?
  • The Dow Jones Industrial Average DJIA,
    fell 265 points, or 0.8%, to 33,729.

  • The S&P 500 SPX,
    fell 48 points, or 1.1%, to 4,234.

  • The Nasdaq Composite fell 223 points, or 1.7%, to 12,743.

On Thursday, the S&P 500 SPX,
up 0.2% to 4,283.74, the Dow Industrials DJIA,
up less than 0.1% to close at 33,999.04 and the Nasdaq Composite COMP,
up 0.2% to end at 12,965.34.

What moves the markets?

Friday will be devoid of any major US economic data, leaving investors to grapple with the monthly expiration of $2 trillion in stock and index options and comments from Federal Reserve officials.

See: Stock market rally faces a major challenge at the S&P 500 200-day moving average

Treasury yields rose on Friday as investors returned to the view that the Fed’s big rate hikes were not over with the 10-year yield TMUBMUSD10Y,
up 5 basis points to 2.913% and 2-year TMUBMUSD02Y,
up 3 basis points to 3.238%.

Rate-sensitive tech stocks appeared poised to take the brunt, with the Nasdaq leading the market lower. The tech-heavy index is heading for a weekly decline of 0.6%, while the S&P 500 remains in positive territory after both indexes ended last week with a fourth straight gain, their longest weekly streak since November 2021.

Meanwhile, investors are also anticipating an increasing likelihood that the US Federal Reserve will hike interest rates by 75 basis points at its September meeting.

St. Louis Fed President James Bullard told the Wall Street Journal Thursday that he was “leaning” to a 75 basis point hike in September. Investors also heard more cautious comments from Kansas City Fed Chair Esther George, who said how quickly rate hikes would come is still up for debate.

Richmond Fed President Tom Barkin said Friday morning that while the Fed will “do whatever is necessary” to push inflation back towards its 2% target, “a return to normal does not require a catastrophic contraction in economic activity “.

Opinion: The Fed doesn’t get cold feet from beating inflation, so stop misreading their minutes

After US retailers reported second-quarter earnings, investors are shifting their focus to what Fed Chair Jerome Powell will say at the Fed’s annual economic symposium in Jackson Hole, Wyoming, next week.

“I think everyone’s just waiting for Jackson Hole, so I think there’s going to be a lot of speculation about what Powell is going to say over the next five days,” Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co., said manages assets of around US$ 20 billion, mainly on behalf of university endowments.

The economic data picture was mixed this week as retail sales stagnated while Wall Street received disappointing results from Target TGT,
and Kohl’s KSS,
But Thursday brought data showing weekly jobless claims fell by 2,000 to 250,000 with no sign of mass layoffs.

Which companies are in focus?
  • Bed, Bath & Beyond Inc.
    Shares fell 40% after investor Ryan Cohen confirmed he’d sold his entire stake in the retailer for a profit of more than $58 million.

  • shares of Hirsch & Co.
    tumbled 3.5% after the tractormaker reported third-quarter earnings that missed expectations on higher costs and production inefficiencies, but its revenue beat forecasts.

  • shares of Footlocker Inc. FL,
    soared 22% ahead of Friday’s market open, boosted by the sneaker retailer’s second-quarter results.

How are other assets traded?
  • Crude oil prices fell in tandem with stock futures. West Texas Intermediate Crude Oil CL.1,
    for September fell 6 cents, or 0.1%, to $90.05 a barrel, while Brent BRN00,
    fell 42 cents, or 0.4%, to $96.29 a barrel.

  • The US dollar index DXY,
    Climbed 0.5% to 107.98 as investors sought safe haven assets.

  • Gold prices fell, with December futures for the precious metal GCZ22,
    it fell $7.70, or 0.4%, to $1,763.30 an ounce.

  • bitcoin BTCUSD,
    fell 8% to $21,440 and is heading for what could be its biggest loss in two months. US stocks open lower as traders brace for volatility ahead of monthly options expiry

Brian Lowry

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