U.S. stocks closed lower Friday as the technology-heavy Nasdaq Composite notched its first back-to-back decline since mid-May, while investors fretted about rising Sino-American tensions and a lack of progress on another fiscal stimulus bill in Washington.
Rising coronavirus cases in 40 American states are also limiting business and consumer activity and threatening economic recovery.
How did benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.54% declined 182.44 points, or 0.7%, to close at 26,469.89; the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.52% gave up 20.03 points, or 0.6%, closing at 3,215.63; and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.19% fell 98.24 points or 0.9% to close at 10,363.18.
The Nasdaq-100 /zigman2/quotes/210598364/realtime NDX -0.02% , comprising the largest companies in the Nasdaq, was down 0.9% at 10,483.13.
For the week, the Dow ended 0.8% lower, the S&P 500 had a decline of 0.3%, and the Nasdaq lost 1.3%. The Nasdaq-100 skidded 1.5% for the week, and the Russell 2000 /zigman2/quotes/210598147/delayed RUT +1.65% , which tracks smaller companies, finished 0.4% lower.
What drove the market?
Stocks ended the week with losses as appetite cooled for the giants of the technology world which have carried the burden of the recent multimonth run-up in the broader market.
Valuations for the Nasdaq Composite are 22% above its long-term price trend, but that compares with 280% above trend during the height of the dot-com bubble in 2000, said Keith Lerner, chief market strategist, at SunTrust Advisory Services.
“Absolute valuations are elevated but are less than half of the levels reached back then,” Lerner said. “The rising influence of a small group of stocks is a risk for the overall market, though these same companies are also contributing an increasing amount of cash flow and profits.”
Wall Street has been heartened by quarterly results that have exceeded a low bar in the middle of pandemic, but a run-up in gold prices to a near record and super-low yields in government debt imply that investors fret that the market remains vulnerable to pullbacks after the Nasdaq and the S&P 500 index posted their worst daily drops since June 26 on Thursday.
Asian markets tumbled overnight Friday as Beijing retaliated against the U.S. by ordering the closure of the country’s consulate in Chengdu, with tensions between the between the world’s two largest economies escalating from trade frictions to visa restrictions earlier. The U.S. earlier this week ordered China to close its Houston consulate.
President Donald Trump, during a coronavirus news briefing on Thursday, also said that a trade pact between China and the U.S. “means less to me now than it did when I made it.”
Trump’s comments came as Secretary of State Mike Pompeo on Thursday called on governments around the world to join the U.S. in confronting China’s Communist Party leaders. “The kind of engagement we have been pursuing has not brought the kind of change inside of China that President Nixon had hoped to induce,” Pompeo said in a speech.
“Traders are fearful this could be the beginning of a tit-for-tat spat between the two largest economies in the world,” wrote David Madden, market analyst at CMC Markets UK.
Thus far, China-U.S. tensions have been ignored in favor of a focus on the public-health crisis and fiscal stimulus.
But more recently, all those issues ran head-on into an arguably overvalued market, said Will Geisdorf, senior research analyst with Sarasota, Fl-based Allegiant Private Advisors.