S&P 500 bounces at weekly lows around 4600 amid choppy trading conditions on “quad witching” day

• The S&P 500 was down 0.1%, the Nasdaq 100 up 0.4% and the Dow down 0.8%.
• US equity markets experienced choppy trading conditions on Friday amid “quad witching”.

US equity markets remain choppy on the final trading day of the week as traders and market participants weigh up this week’s main macro narratives, including the Fed’s hawkish pivot and a continued rise in global Omicron Covid-19 variant infections. The S&P 500 was last down 0.1%, though it bounced from earlier session lows in the 4600 area after finding support at prior weekly lows and recently managed to recover back above the 4650 level.

The Dow was down about 0.8%, though also mustered a modest recovery from earlier session lows in the 35.2K area to back above 35.5K, which means it still trades about 1.5% below Thursday’s highs at 36.2K. Long-term US bond yields fell on Friday, weighing on the appeal of cyclical stocks (i.e. stocks that trade based on expectations for economic growth). The 10-year fell below 1.40% to nearly hit two-week lows and is still down about 30bps since pre-Omicron highs close to 1.70%.

Weakness in yields has helped the growth/duration-sensitive Nasdaq 100 outperform, with the index actually now up about 0.4% on the day, having reversed from earlier session losses of as much as 1.3%. Recall that the valuation of many stocks in the Nasdaq 100 is more cased on expectations for future earnings growth rather than on actual earnings being reported today, leaving their valuation exposed to an increase in opportunity costs. A rise in long-term government bond yields is a proxy for this. Elsewhere, the CBOE S&P 500 Volatility Index was up half a point to the 21.00 area.

Trading conditions were also unpredictable/choppy on Friday, and are likely to remain like this for the remainder of the session, given that Friday was “quad witching” day. This is the simultaneous expiration of stock options, stock index futures and index options contracts, which happens once per quarter.