NEW YORK (AP) – Shares are falling on Friday after reports showed the pandemic is deepening the hole for the economy, as Washington prepares to launch another lifeline.
The S&P 500 fell 0.5% in afternoon trading, with the stocks of companies that most need a healthier economy suffering the most severe losses. The Dow Jones Industrial Average fell 99 points, or 0.3%, at 30,892, starting at 2:30 pm Eastern time, and the Nasdaq compound was 0.5% lower.
Treasury yields also declined, as reports showed that buyers contained spending during the holidays and are feeling less confident, the latter in a litany of discouraging data about the economy.
Stocks have run out of breath since the S&P 500 set a historic record a week ago amid optimism that the COVID-19 vaccines and further stimulus from Washington will bring about an economic recovery. The S&P 500 is on its way to a 1.2% drop this week, which would be the first in the last three.
Friday offered the first chance for traders to take action after President-elect Joe Biden revealed details of a $ 1.9 trillion plan to sustain the economy. He called for cash payments of $ 1,400 for most Americans, the extension of temporary benefits for dismissed workers and an effort to provide COVID-19 vaccines to more Americans. It certainly met investors’ expectations of a big and bold plan, but the markets had already recovered strongly in anticipation of this.
“To some extent, most of that optimism has been assessed, but the huge numbers have also invited some contemplation on whether the necessary bipartisan support will materialize for this huge amount,” said IG’s Jingyi Pan in a comment. “The market appears to be playing it safe,” she said.
Biden’s Democratic allies will have control of the House and Senate, but only by a small margin in the Senate. This can hinder the chances of approval of the plan.
The urgency to provide this help increases with each passing day. On Friday, a report showed that retail sales fell 0.7% in December, a crucial month for the sector. The reading was much worse than the 0.1% growth that economists had expected, and it was the third consecutive month of weakness.
Other reports showed that a preliminary reading on consumer sentiment weakened more than economists expected, while wholesale inflation remains low due to worsening pandemic maintains control over prices and economic activity. They follow a discouraging report on Thursday showing that the rate of layoffs is accelerating across the country.
Falling bank shares were some of the heaviest weights on the market, although several of the industry’s biggest names reported stronger profits in late 2020 than analysts had expected. JPMorgan Chase fell 1.1%, for example, while Wells Fargo fell 6.9%.
Although the overall results were good, “the bank gains did not impress anyone,” said JJ Kinahan, chief strategist at TD Ameritrade.
Bank shares soared in previous weeks with the expectation that a stronger economy later this year and higher interest rates would mean higher profits from lending.
Like banks, shares in smaller companies were also falling more than the rest of the market in a mirror image of the past few weeks. Smaller companies are seen as benefiting more from a healthier economy and Washington’s stimulus than their larger rivals, in part because they tend to have smaller financial reserves.
The Russell 2000 index of low capitalization stocks fell 1%.
Even with Friday’s declines, which decreased over the course of the day, enthusiasm about the better economic conditions that will come in the future, with the launch of vaccines, continues to keep stocks close to records and Treasury yields close to those highest since last spring. The Russell 2000 also remains 8% higher for 2021 so far, rising above the 0.6% gain of the S&P 500.
A big question for investors is what a big boost to Washington’s economy would mean for interest rates.
“There are consequences to putting money in the system and the consequence is inflation,” said Kinahan.
Treasury yields have rebounded amid expectations that the government will have to borrow much more to pay the stimulus, as well as economic growth and inflation forecasts. The 10-year Treasury yield rose above 1% last week for the first time since last spring and briefly exceeded 1.18% this week.
This is raising concerns about how far interest rates can go before disrupting the stock market. Federal Reserve President Jerome Powell helped to calm some of these concerns with comments that investors have considered leaning towards lower rates for longer.
The 10-year Treasury’s yield fell to 1.09% from 1.11% on Thursday night.
In European stock markets, Germany’s DAX lost 1.4% and France’s CAC 40 fell 1.2%. The FTSE 100 in London fell 1%.
In Asia, Japan’s Nikkei 225 fell 0.6%, while Hang Seng in Hong Kong rebounded to close with a 0.3% gain. South Korea’s Kospi fell 2%, while inventories in Shanghai were largely unchanged.
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AP business writer Elaine Kurtenbach contributed.