Stocks Rebound, Yields Recover, Fed Watching Emerging Markets

The major U.S. stock indexes posted solid gains on Friday, but this was far from enough to offset the steep losses from earlier in the week. Despite the higher close, the indexes still finished the week with sharp losses and increasing concerns over rising interest rates, overvalued technology stocks and a possible economic slowdown.

In the cash market, the benchmark S&P 500 Index settled at 2767.13, up 38.76 or +1.40%. The blue chip Dow Jones Industrial Average finished at 25339.99, up 287.16 or 1.13% and the tech-based NASDAQ Composite closed at 7500.45, up 171.39 or +2.29%.

The highlight of the trading session was the volatility in the form of wickedly wide trading ranges. All three major indexes traded sharply higher initially before giving back their gains and reversing back to the upside into the close.

U.S. Treasury Markets

U.S. Treasury yields snapped back on Friday as U.S. stocks rebounded from a steep sell-off earlier in the week. The rise in yields was fueled by investors who reversed their safe-haven buys of Treasurys during the height of the stock market sell-off. Bond yields move inversely to prices.

The yield on the benchmark 10-year Treasury note settled at 3.167 percent, up 0.036, while the yield on the 30-year Treasury bond finished at 3.338 percent, up 0.033.

Earlier in the week, the stock market was rocked as investor sentiment dipped on concerns over rising interest rates. The steep drop in stocks drove investors to seek shelter in the so-called safe-haven Treasury instruments. Once stocks began to stabilize on Friday, investors who bought Treasurys began to sell their positions, driving Treasury yields higher.

Emerging Markets

On Friday, Federal Open Market Committee Member and Vice-Chairman for Supervision Randal Quarles said the Federal Reserve is taking into account the effects its policies have on emerging markets.

“We do consider the implication of our own policy to emerging markets,” said Mr. Quarles. “The right response is for us to be predictable, gradual about our policy as we can.”

The issue was addressed because some investors and nations have complained the Fed’s tightening has caused strains across emerging markets – most notably in Argentina and Turkey, but also in Indonesia as capital flows reverse. Officials from the South-east Asian nation and other developing economies have used this week’s annual IMF meetings in the resort island to call for awareness of their strains as the era of crisis-level monetary settings across the developed world comes to a close.