Closing Market Summary: Turkish Lira Rattles Investors Around the GlobeA plunging Turkish lira sent shock waves through global equity markets on Friday, causing concerns over the financial health of lenders with heavy exposure to the economically-struggling country. The S&P 500 lost 0.7%, dropping into the red for the week (-0.3%), and the Nasdaq (-0.7%) and the Dow (-0.8%) suffered similar declines.
The lira was down nearly 16% against the U.S. dollar at Wall Street's closing bell, weighed down by continued tensions between the U.S. and Turkey, which made no progress during talks this week regarding the detainment of American pastor Andrew Brunson, who is accused of supporting a group blamed for an attempted coup in 2016.
Trying to stop the bleeding, Turkey's president, Recep Tayyip Erdogan, encouraged citizens to convert their holdings of gold and foreign currencies into lira on Friday morning. However, President Trump swiftly responded by turning up the pressure, announcing that he's authorized a doubling of tariffs on Turkish steel and aluminum.
Stock markets in Europe and Asia ended Friday with sizable losses, although China's tariff-ridden Shanghai Composite finished flat. Investors in the U.S. flocked to the Treasury market, sending yields lower across the curve. The benchmark 10-yr yield, for instance, dropped eight basis points to 2.86%, a fresh three-week low.
The drop in yields -- and, more specifically, the flattening of the yield curve -- weighed on the financial sector (-1.2%), which finished with materials (-1.4%) at the bottom of the sector standings. 10 of 11 sectors finished in the red, with energy (+0.3%) being the lone exception, helped by a 1.3% rise in WTI crude futures ($67.67/bbl).
Within the tech space (-0.8%), chipmakers were particularly weak with Intel (INTC 48.85, -1.29) losing 2.6% after being downgraded to 'Sell' from 'Neutral' at Goldman, and Microchip (MCHP 87.41, -10.67) tumbling 10.9% after issuing disappointing revenue guidance. The PHLX Semiconductor Index declined by 2.5%.
Friday's batch of corporate earnings -- which also included results released Thursday evening -- was the last heavy batch of the Q2 earnings season. In addition to Microchip, Dropbox (DBX 31.05, -3.38) declined after reporting its results, losing 9.8%, but both Planet Fitness (PLNT 51.94, +3.15) and Overstock.com (OSTK 41.65, +3.05) rallied, adding 6.5% and 7.9%, respectively.
Looking ahead, next week's earnings lineup is retail-heavy with Walmart (WMT 90.18, +1.17), Home Depot (HD 196.30, -1.78), Macy's (M 39.97, -0.59), Nordstrom (JWN 52.58, +0.03), J.C. Penney (JCP 2.42, -0.01), Advance Auto (AAP 146.35, -1.44), and Dillard's (DDS 85.83, -2.34) all on the docket.
Reviewing Friday's economic data, which included the Consumer Price Index for July and the July Treasury Budget:
- Total CPI increased 0.2% (consensus +0.2%) in July, and core CPI, which excludes food and energy, also rose 0.2% (consensus +0.2%). On a year-over-year basis, total CPI is up 2.9% (vs +2.9% in June) and core CPI is up 2.4% (vs +2.3% in June).
- The key takeaway from the report is that consumer inflation trends are running above the Federal Reserve's longer-run inflation target, which will keep the Federal Reserve inclined to raise the target range for the fed funds rate.
- The Treasury Budget for July showed a deficit of $76.9 billion versus a deficit of $42.9 billion for July 2017.
- The Treasury Budget data is not seasonally adjusted, so the July deficit cannot be compared to the $74.9 billion deficit registered in June.
Investors will not receive any economic data on Monday.
- Nasdaq Composite +13.6% YTD
- Russell 2000 +9.9% YTD
- S&P 500 +6.0% YTD
- Dow Jones Industrial Average +2.4% YTD
