Market Snapshot: Dow drops 300 points as options expiration unleashes volatility in stocks

What’s driving markets?

Friday is devoid of major U.S. economic data, leaving investors to deal with the monthly expiration of more than $2 trillion worth of stock and index options and comments from Federal Reserve officials.

See: Stock-market rally faces key challenge at S&P 500’s 200-day moving average

Treasury yields were climbing on Friday as investors returned to the view that Fed large interest rates hikes were not over, with the 10-year yield
TMUBMUSD10Y,
2.984%
up 11 basis points to 2.987% and the two-year
TMUBMUSD02Y,
3.246%
up 4.3 basis points to 3.254%.

Interest-rate sensitive tech stocks looked ready to bear the brunt, with the Nasdaq leading the market lower. The tech-heavy index was headed for a 0.6% weekly drop, while the S&P 500 is clinging to positive territory, after both indexes ended last week with a fourth-straight win, their longest weekly streak since November 2021.

Meanwhile, investors are also assessing the rising likelihood that the Federal Reserve will raise interest rates by 75 basis points at its September meeting.

St. Louis Fed President James Bullard told The Wall Street Journal on Thursday that he would “lean toward” a 75 basis point hike in September. Investors also heard more cautious comments from Kansas City Fed President Esther George, who said how fast hikes will happen remains up for debate.

Speaking Friday morning, Richmond Fed President Tom Barkin said that while the Fed “will do what it takes” to drive inflation back toward its 2% target, “returning to normal does not require a calamitous drop in economic activity”, Bloomberg reported.

Opinion: The Fed is not getting cold feet about wrestling inflation to the ground, so stop misreading its minutes

Now that U.S. retailers have finished reporting second-quarter earnings, investors are shifting their focus toward what Fed Chairman Jerome Powell will say during the Fed’s annual economic symposium in Jackson Hole, Wyo. next week.

“I think everybody is just waiting for Jackson Hole, so I think there will be a lot of speculation over what Powell is going to say for the next five days,” said Brad Conger, deputy chief investment officer at Pennsylvania-based Hirtle Callaghan & Co., which oversees about $20 billion in assets, mostly on behalf of university endowments.

The U.S. economic data picture this week was mixed, as retail sales were flat, while Wall Street received disappointing results from Target
TGT,
-3.07%
and Kohl’s
KSS,
-3.85%.
But Thursday brought data showing weekly jobless benefit claims falling 2,000 to 250,000, with no signs of mass layoffs.

What companies are in focus?

• Bed, Bath & Beyond Inc.
  BBBY,
  -38.21%
  shares tumbled 41.2% after investor Ryan Cohen has confirmed that he sold his entire stake in the retailer, and earned a profit of more than $58 million.

• Shares of Deere & Co.
  DE,
  +0.17%
  slumped 2.3% after the tractor maker reported fiscal third-quarter profit that missed expectations, owing to higher costs and production inefficiencies, but its revenue beat forecasts. 

• Shares of Foot Locker Inc. 
  FL,
  +21.12%
   rose 20% before market open on Friday, boosted by the sneaker retailer’s second-quarter results. 

• Shares of Weber Inc.
  WEBR,
  -8.13%
  tumbled Friday after surging above $10 a share a day earlier for the first time since June.

How are other assets trading?

• Crude prices fell in step with stock futures. West Texas Intermediate crude
  CL.1,
  +1.08%
  for September dropped 22 cents, or 0.3%, to $90.34 a barrel, while Brent
  BRN00,
  +0.65%
  was marginally lower at $96.53 a barrel.

• The U.S. dollar index
  DXY,
  +0.60%
  climbed 0.6% to 108.2 as investors sought haven assets.

• Gold prices fell, with December futures for the precious metal
  GCZ22,
  -0.46%
  dropping $9, or 0.5%, to $1,762.50 an ounce.

• Bitcoin
  BTCUSD,
  -7.96%
  fell 8.2% to $21,337 and was headed for what could be the biggest loss in two months.

• Japan’s Nikkei 225
  NIY00,
  -1.10%
  finished marginally lower at 28,930.33 Friday, while Hong Kong’s Hang Seng index
  HSI,
  +0.05%
  gained 0.1% to 19,773.03. The Euro Stoxx 600
  FXXP00,
  +0.23%
  fell 0.8%, while the UK’s FTSE 100
  UKX,
  +0.11%
  advanced 0.1%.