S&P 500 drops to 4520, on course for third successive daily loss as strong US data boosts Fed tightening bets

• US equities were on course to post a third successive day in the red as strong US data saw markets up Fed tightening bets. 
• The S&P 500 was last down 0.2% in the 4520 area. 

US equities were on course to post a third successive day in the red on Friday as strong US labour market data and an inflationary ISM Manufacturing PMI report raised the prospect of a faster pace of Fed tightening this year and next. The S&P 500 was last trading about 0.1% lower on the day in the 4520s, having fluctuated between lows just above 4500 and highs near 4550. The index is on course to end the week with modest losses of about 0.4% and about 2.4% lower versus Tuesday’s highs. 

The heavily tech/growth stock waited Nasdaq 100 index was a modest underperformer, losing nearly 0.5% to drop back into the 14,700s, leaving the index now more than 3.0% below earlier weekly highs in the 15,200s. However, the index remains on course to close in the green on the week. Tech/growth names underperformed on Friday amid a sharp rise in US yields, particularly at the short-end following the strong US data, which raises the “opportunity cost” of owning stocks whose current earnings are low relative to valuation. 

Stocks whose current earnings are relatively higher when compared to current valuations, or so-called value/cyclical stocks which make up a heavier weighting in the Dow, performed better on Friday. Indeed, the Dow was last trading flat in the 34,600s, leaving it only about 2.0% below earlier weekly highs in the 35,300s. The S&P 500 CBOE Volatility Index (or VIX), often referred to as Wall Street’s “fear gauge” fell about half a point to near 20.00, which is its long-term average. That leaves it only about 1.50 above recent lows, indicative of calmer seas in the current equity market.