US Stocks Fall; Rally Runs Out of Gas 01/15 16:15
Wall Street closed out its first losing week in three with another drop on
Friday after reports showed the pandemic is deepening the hole for the economy,
as Washington prepares to throw it another lifeline.
NEW YORK (AP) -- Wall Street closed out its first losing week in three with
another drop on Friday after reports showed the pandemic is deepening the hole
for the economy, as Washington prepares to throw it another lifeline.
The S&P 500 fell 27.29, or 0.7%, to 3,768.25, with stocks of companies that
most need a healthier economy taking some of the sharpest losses. The Dow Jones
Industrial Average lost 177.26, or 0.6%, to 30,814.26, and the Nasdaq composite
dropped 114.14, or 0.9%, to 12,998.50.
Treasury yields also dipped as reports showed shoppers held back on spending
during the holidays and are feeling less confident, the latest in a litany of
discouraging data on the economy.
Stocks have run out of steam since the S&P 500 set a record high a week ago
amid optimism that COVID-19 vaccines and more stimulus from Washington will
bring an economic recovery. The S&P 500 fell 1.5% over the week.
Friday offered the first chance for traders to act after President-elect Joe
Biden unveiled details of a $1.9 trillion plan to prop up the economy. He
called for $1,400 cash payments for most Americans, the extension of temporary
benefits for laid-off workers and a push to get COVID-19 vaccines to more
Americans. It certainly fit with investors' expectation for a big and bold
plan, but markets had already rallied powerfully in anticipation of it.
"To some extent, most of this optimism had been priced in, but the huge
figures had also invited some contemplation as to whether the necessary
bipartisan support will materialize for this huge sum," Jingyi Pan of IG said
in a commentary. "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 the slimmest of margins in the Senate. That could hinder the chances of
the plan's passage.
The urgency for providing such aid is ramping by the day. One report on
Friday showed that sales at retailers sank by 0.7% in December, a crucial month
for the industry. The reading was much worse than the 0.1% growth that
economists were expecting, and it was the third straight month of weakness.
Other reports showed that a preliminary reading on consumer sentiment
weakened more than economists expected, while inflation at the wholesale level
remains low as the worsening pandemic keeps a lid on prices and economic
activity. They follow a dismal report from Thursday showing that the pace of
layoffs is accelerating across the country.
Falling bank stocks were some of the heaviest weights on the market, even
though several of the industry's biggest names reported stronger profits for
the end of 2020 than analysts expected. Wells Fargo slumped 7.8%, for example,
and Citigroup dropped 6.9%.
While the overall results were good, "bank earnings didn't exactly wow
anybody," said J.J. Kinahan, chief strategist with TD Ameritrade.
Bank stocks had run up in prior weeks on expectations that a stronger
economy later this year and higher interest rates would mean bigger profits
from making loans.
Like banks, stocks of smaller companies also fell more than the rest of the
market in a mirror image of recent weeks. Smaller companies are seen as
benefiting more from a healthier economy and stimulus from Washington than
their bigger rivals, in part because they tend to have smaller financial
The Russell 2000 index of small-cap stocks lost 32.15, or 1.5%, to 2,123.20.
Even with Friday's drops, ebullience about a brighter economic future
because of vaccines is keeping stocks near records and Treasury yields close to
their highest levels since last spring. The Russell 2000 remains 7.5% higher
for 2021 so far, towering over the S&P 500's 0.3% gain.
A big question for investors is what big stimulus for the economy from
Washington would mean for interest rates.
"There are consequences to putting money into the system and the consequence
is inflation," Kinahan said.
Treasury yields have been climbing on expectations that the government will
borrow a lot more to pay for its stimulus, as well as rising forecasts for
economic growth and inflation. The yield on the 10-year Treasury zoomed above
1% last week for the first time since last spring and briefly topped 1.18% this
That is raising worries about how much further interest rates can go before
upsetting the stock market. Federal Reserve Chair Jerome Powell helped to calm
some of those concerns on Thursday with comments that investors took as leaning
toward lower rates for longer.
The yield on the 10-year Treasury dipped to 1.09% from 1.11% late Thursday.
In markets abroad, European stocks slumped, while Asian indexes were mixed.