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The stock market’s early rally was already losing steam Friday, after China’s policy makers took steps to boost its flagging economy.
In morning trading, the
Dow Jones Industrial Average
reversed earlier strength, dipping down 20 points, or 0.1% while the
S&P 500
rose 0.4%, and the
Nasdaq Composite
gained 0.3%.
The People’s Bank of China lowered the key five-year prime loan rate on Friday for the second time this year, and the move to 4.45% to 4.6% was the largest cut on record. It’s the right kind of surprise for a stock market that has been on its heels all week.
“China’s decision to cut its five-year loan prime rate, a reference rate for mortgages, helped boost risk sentiment going into Friday’s session,” said Neil Wilson, an analyst at broker Markets.com. “There is a decent follow-through,” he added, noting that European indexes and U.S. futures were heading higher as a result.
It’s the kind of narrative-changing move the market needed following Wednesday’s rout, which wiped out some $1.5 trillion in market value. The Federal Reserve, of course, is raising interest rates and draining money from the economy as it tries to get inflation under control. That’s raised the risk of a recession in the coming months if the Fed tightens too much. Still, there were signs on Thursday that the market was wrestling with how much more it needed to fall to reflect those risks.
“Although equities fell again yesterday it was all fairly orderly,” said Jim Reid, a strategist at Deutsche Bank.
Friday’s bounce, however, is not the all-clear signal investors have been waiting for. The Dow remains near its lowest levels since March 2021, while the S&P 500 has declined almost 19% this year—flirting with a bear market—and is poised to fall for a seventh consecutive week. The tech-stock-laden Nasdaq Composite is down 28% in 2022.
“Historically, the S&P 500 has fallen an average of 29% around recession (median of 24%). The market is effectively already pricing in a 60%-75% chance of recession based on the average and median,” wrote Truist Advisory Services Chief Market Strategist Keith Lerner. That said, he noted that given the market’s recent decline and “current oversold backdrop, we would not be sellers at these levels for investors that are aligned with their longer-term allocation targets.”
Still, closing the week with a rally, if the gains hold, is surely better than the alternative. “The one silver lining from the selling of the past two days was that we managed to close well off from last week’s lows, suggesting a general reluctance to become too bearish too quickly,” said Michael Hewson, an analyst at broker CMC Markets.
Cold comfort, that.
Overseas, the pan-European Stoxx 600 gained 1.3% and Hong Kong’s Hang Seng Index rallied 3%.
Here are some stocks on the move Friday:
Palo Alto Networks
(ticker: PANW) shot up 12% after the cybersecurity company reported stronger-than-expected results and raised its guidance. It saw sales rise 29% from a year earlier to $1.4 billion in the last quarter and expects revenue to touch as high as $1.55 billion in the current quarter.
Ross Stores
(ROST) tumbled 23% after its earnings and sales missed analyst forecasts. Its guidance was dreadful as well.
Deere
(DE) has fallen 9% despite reporting better-than-expected earnings.
Air France-KLM
(AF.France) rose 2% in Paris trading, after the airline group entered into discussions with private equity giant
Apollo Global Management
(APO) over a €500 million ($530 million) capital injection. Apollo shares rose less than 0.5% in the U.S. premarket.
Cie. Financière Richemont
(CFR.Switzerland) tumbled 13% in Zurich trading, after the luxury group behind brands including Cartier and Montblanc reported operating profit short of analysts’ expectations. The company’s chief financial officer suggested supply-chain disruptions weren’t over and that stagflation—slowing growth and inflation—represents the largest headwind.
Write to Jack Denton at jack.denton@dowjones.com and Teresa Rivas at teresa.rivas@barrons.com
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