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Stocks ended a choppy session higher to extend gains after their best day since July, with investors looking past regulatory concerns in China and focusing on optimism over the U.S. economic recovery.
The advance did not extend to all risk assets, however. Renewed signs of an escalating crackdown on cryptocurrencies in China sent prices of the major digital tokens tumbling Friday. Bitcoin (BTC-USD) fell another 6% to hover just under $41,000 at session lows, while Ethereum (ETH-USD) sank nearly 10% to below $2,800. This came after the People's Bank of China (PBOC) issued a statement barring domestic and overseas financial institutions and payments companies from providing cryptocurrency transactions and other services in China.
This week, cyclical stocks including the industrials, energy and financials sectors outperformed after the Federal Reserve signaled the economic recovery "has made progress" toward the central bank's goals on employment and inflation. The Fed has also now primed markets for its asset-purchase tapering to begin as soon as November against the improving economic backdrop.
"It’s not a surprise to me that the Fed is moving forward with the tapering," Jeff Schulze, ClearBridge chief investment strategist, told Yahoo Finance Live on Thursday. "If you think about the three month moving average ... we're at about 740,000 jobs created per month. That is stronger than anything we've ever seen pre-COVID.”
"For the first time in a long time, markets are cheering on a marginally more hawkish Fed," he added. "It's becoming clear to participants that we are moving past peak Delta, you're going to see a very strong re-acceleration over the next couple of quarters, and that's going to go a long way to keep earnings moving forward."
Treasury yields held onto gains from Thursday, with the benchmark 10-year yield topping 1.41% to reach its highest level since July. The move higher in yields, however, did not appear to spook equity investors, nor did it weigh heavily on some of the technology and growth stocks that had taken a hit as rates rose earlier this year. The Nasdaq posted a gain of more than 1% as of Thursday's close.
According to Mark Haefele, UBS Global Wealth Management’s chief investment officer, given the still-low Treasury yields seen during the pandemic, "Only a rise in real yields of more than 50 [basis points] over three months would likely weigh on equity returns, particularly in emerging markets."
Other pundits also pointed to the Fed's more constructive view on the recovery as a main factor helping send stocks on a late-week rally.
"A hawkish Fed was surprisingly welcomed by equity markets as it was seen as a confirmation of continued strength and 'substantial progress' made by the economy in recovering from the COVID shock," Anu Gaggar, global investment strategist for Commonwealth Financial Network, wrote in an email.
"While we are far from the end of [quantitative easing] and near-zero rates, the tide seems to be beginning to change," Gaggar added. "So far, the market had welcomed bad news as good news, but a market reacting to signs of an economy able to stand on its own without the monetary policy crutches is a refreshing change."
1:10 p.m. ET: 'Macro-driven market' environment is ending: Strategist
With the Federal Reserve poised to begin tapering its asset purchase program and then eventually begin raising interest rates, investors should focus on picking stocks of companies that can absorb the higher borrowing costs, according to at least one strategist.
"As we get into this tightening phase, you're going to want to focus on those companies that have higher returns on invested capital, that can weather that increase in the cost of capital, and you also want companies, in our opinion, that are exhibiting positive earnings revisions," Matt Lockridge, Westwood Group Quality Value Fund portfolio manager, told Yahoo Finance Live on Friday.
"Over the last couple of years, we've really had a more macro-driven market. That to us is ending," he added. "You can really look at individual securities and you really want to focus on those companies that are growing and are beating expectations so that earnings revisions are moving up."
10:25 a.m. ET: Government shutdowns 'tend to be short-lived': Strategist
Congress is racing to pass legislation to fund the federal government and avert a shutdown by September 30.
The House of Representatives passed a bill to temporarily fund the government and suspend the debt limit earlier this week. However, the bill faces an uphill battle in the Senate, where Republican policymakers have threatened to block the bill in its current form.
Even if the government does shut down next week, however, the impact to markets will likely be minimal, some strategists maintained.
"Historically, we've seen that government shutdowns tend to be short-lived," Jordan Jackson, JPMorgan Asset Management global market strategist, told Yahoo Finance Live on Friday. "We also know that for those non-essential federal employees, they do get furlough pay as well."
"And so recognizing that if it lasts more than 30 days, it's certainly going to have a bigger impact on the economy," he added. "But generally speaking, these shutdowns tend to be short-lived and markets — while they may correct in the short-term — they do sort of continue to grind higher. I think it's certainly a risk in terms of a short term mini correction there. But again, with all the liquidity out there, I think any sort of blip in the markets will be short-lived."
10:00 a.m. ET: New home sales rose more than expected in August, reaching highest since April
New home sales jumped more than expected in August, with a jump in purchases in the Northeast helping push sales to their highest since April.
The Commerce Department reported Friday morning that new home sales were up 1.5% last month to a seasonally adjusted annualized rate of 740,000. Consensus economists were looking for a rise of 1.0%, according to Bloomberg data.
July's new home sales were up 6.4% month-on-month, with this data upwardly revised sharply from the 1.0% increase previously reported.
In August, the Northeast saw by far the biggest increase in sales at 26.1%. Sales in the Midwest, meanwhile, fell 31.1% on the month. The South and West saw modest increases in monthly sales.
9:30 a.m. ET: Stocks open lower, Dow drops 100+ points as Nike shares fall after earnings
The three major indexes fell Friday morning, holding onto overnight losses as momentum from Wednesday and Thursday's sessions faded.
The S&P 500, Dow and Nasdaq each sank as markets opened for trading. The Dow dropped more than 100 points, or 0.3%, as shares of Nike (NKE) sank more than 5.5% following a quarterly sales miss reported Thursday afternoon.
The footwear and athletic-wear giant posted fiscal first-quarter sales of $12.25 billion, which grew 16% over last year but missed estimates for $12.47 billion, according to Bloomberg consensus data. North America revenue — the company's biggest geographical segment by sales — came in light, rising to $4.88 billion compared to the $4.98 billion expected.
Nike also lowered its sales forecast for the current quarter, as factory closures in Vietnam curbed the company's ability to keep up with demand. For the full year, Nike now expects sales to rise by mid-single-digits rather than by low-double-digits, based on the company's earlier forecast.
7:21 a.m. ET Friday: Stock futures dip, giving back some of Thursday's advances
Here's where markets were trading ahead of the opening bell:
S&P 500 futures (ES=F): -17 points (-0.38%), to 4,421.00
Dow futures (YM=F): -107 points (-0.31%), to 34,537.00
Nasdaq futures (NQ=F): -80.25 points (-0.52%) to 15,223.25
Crude (CL=F): -$0.18 (-0.25%) to $73.12 a barrel
Gold (GC=F): +$5.10 (+0.29%) to $1,754.90 per ounce
10-year Treasury (^TNX): +0.8 bps to yield 1.418%
6:27 p.m. ET Thursday: Stock futures hold onto gains
Here were the main moves in markets as of Thursday evening:
S&P 500 futures (ES=F): +3.25 points (+0.07%), to 4,441.25
Dow futures (YM=F): +15 points (+0.04%), to 34,659.00
Nasdaq futures (NQ=F): +2.5 points (+0.02%) to 15,306.00
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter