The Dow rose and the S&P 500 closed lower in choppy trade on Friday, as beaten-down bank shares gained and investors grappled with how best to deal with an economy that could skid as the US Federal Reserve moves to aggressively tackle inflation.
The yield on the benchmark 10-year US Treasury note hit a three-year high of 2.73 percent, helping boost the S&P banking index, which rose 1.18 percent after slumping to 13-month lows on Thursday. The index is down 10.8 percent so far this year.
The big rate-sensitive lenders all rose, with JPMorgan Chase & Co gaining 1.8 percent, Bank of America Corp 0.7 percent, Citigroup Inc 1.7 percent and Goldman Sachs Group Inc 2.3 percent.
Since peaking at two-month highs late last month, the market has trended lower as the Fed signaled it would aggressively hike rates, leading investors to reposition their portfolios. Economically sensitive value shares this year have outperformed tech-heavy growth stocks, which often depend on low rates.
“We’re going into a very long-term and meaningful period of value outperforming growth. It’s not merely a cyclical adjustment, but a secular story,” said David Bahnsen, chief investment officer at the Bahnsen Group in Newport Beach, California.
“The value-growth story is a big one, and it is a byproduct of two things, which is what you want. Growth is overvalued and value is undervalued,” he said.
The Russell 1000 Value index rose 0.51 percent, while the Russell 1000 Growth index fell 1.09 percent.
Investors are weighing the probability of a recession with two outcomes: The Fed could engineer a “soft landing” with slowing but positive growth, making banks “woefully oversold,” UBS Group AG bank analyst Erika Najarian said.
Or a sharp slowdown is imminent, which would cause a knee-jerk bank share sale as “owning banks in a recession is no fun,” she said.
Big US banks, which start releasing their first-quarter results next week, are expected to report a large decline in earnings from a year earlier, when they benefited from exceptional dealmaking and trading.
“There’s always going to be a price at some point where people are going to step in and think things are cheap and they might buy,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.
“Perhaps a 52-week low was enough to entice some people into the financial sector,” Frederick said, adding that the 10-year Treasury yield was at its highest level since March 2019.
The Dow Jones Industrial Average rose 137.55 points, or 0.4 percent, to 34,721.12, the S&P 500 lost 11.93 points, or 0.27 percent, to 4,488.28 and the NASDAQ Composite declined 186.3 points, or 1.34 percent, to 13,711.
Volume on US exchanges was 10.37 billion shares.
For the week, the S&P fell 1.27 percent, the Dow lost 0.28 percent and the NASDAQ shed 3.86 percent, as the index was hit after Fed officials raised concerns about rapid rate hikes causing a slowdown.
Declining issues outnumbered advancing ones on the NYSE by a 1.20-to-1 ratio; on the NASDAQ a 1.66-to-1 ratio favored decliners.
The S&P 500 posted 58 new 52-week highs and two new lows, while the NASDAQ Composite recorded 53 new highs and 184 new lows.
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