NEW YORK (AP) – On Friday, stocks are slashing after reports show the pandemic is deepening the hole in the economy as Washington prepares to launch another lifeline.
The S&P 500 fell 0.5% in afternoon trading, with shares of companies most in need of a healthier economy suffering the strongest losses. The Dow Jones Industrial Average fell 99 points, or 0.3%, to 30,892, as of 2:30 p.m., and the Nasdaq compound was 0.5% lower.
Treasury yields also declined as reports showed buyers withheld spending during the holidays and feel less secure, the latest in a litany of discouraging data on the economy.
Stocks have been depleted since the S&P 500 set a record a week ago, amid optimism that COVID-19 vaccines and more stimulus from Washington will lead to an economic recovery. The S&P 500 is down 1.2% this week, which would be the first of the last three.
Friday offered the first opportunity for traders to act after President-elect Joe Biden revealed details of a $ 1.9 trillion plan to favor the economy. He asked for $ 1,400 in cash for most Americans, the extension of temporary benefits for laid-off workers and a boost to get COVID-19 vaccines to more Americans. No doubt it was adapting to investors ’expectations of a big, bold plan, but the markets had already focused powerfully on forecasting.
“To some extent, most of this optimism had been fixed in prices, but the huge figures had also called into question whether the necessary bipartisan support for this huge sum would materialize,” Jingyi Pan said. of IG, in a comment. “The market seems to be playing it safe,” he said.
Biden’s Democratic allies will have control of the House and Senate, but only by the thinnest margin of the Senate. This could hinder the possibilities of the passage of the plan.
The urgency of providing this help is increasing every day. On Friday, a report showed that sales to retailers plunged 0.7% in December, a crucial month for the industry. The reading was much worse than the 0.1% growth economists expected and was the third consecutive month of weakness.
Other reports showed that a preliminary reading on consumer sentiment weakened more than economists expected, while inflation at the wholesale level it remains low as the pandemic worsens maintains a cap on prices and economic activity. They follow a sad report Thursday showing that the pace of layoffs is accelerating across the country.
The fall in bank stocks was one of the heaviest weights on the market, although several of the industry’s top names reported stronger gains in late 2020 than analysts expected. JPMorgan Chase fell 1.1%, for example, while Wells Fargo fell 6.9%.
While the overall results were good, “the bank profits didn’t surprise anyone exactly,” said JJ Kinahan, chief strategist at TD Ameritrade.
Bank shares had sold out in previous weeks with expectations that a stronger economy by the end of this year and higher interest rates would mean higher returns on loans.
Like banks, the shares of smaller companies also fell more than the rest of the market in a mirror image of recent weeks. Smaller companies are seen to benefit more from a healthier Washington economy and stimulus than their larger rivals, in part because they tend to have smaller financial cushions.
The Russell 2000 small-cap stock index fell 1%.
Even with Friday’s falls, which narrowed as the day went on, the presence of brighter economic conditions that will occur in the future as vaccines are deployed continues to keep stocks close to records and Treasury yields close to highs since last spring. The Russell 2000 also remains 8% higher for 2021 so far, imposing above the S&P 500 gain of 0.6%.
A big question for investors is what significant stimulus it would pose to the Washington economy for interest rates.
“There are consequences to putting money into the system and the consequence is inflation,” Kinahan said.
Treasury yields have been rising amid expectations that the government will have to borrow much more money to pay for its stimulus, as well as growing forecasts of economic growth and inflation. Ten-year Treasury yields topped 1% last week for the first time since last spring and briefly topped 1.18% this week.
This raises concerns about how much interest rates can reach before upsetting the stock market. Federal Reserve Chairman Jerome Powell helped calm down some of these concerns with comments that investors considered prone to lower rates for longer.
The ten-year Treasury yield fell to 1.09% from 1.11% last Thursday.
In the European stock markets, the German DAX lost 1.4% and the French CAC 40 fell 1.2%. London’s FTSE 100 fell 1%.
In Asia, Japan’s Nikkei 225 fell 0.6%, while Hong Kong’s Hang Seng rebounded with a gain of 0.3%. Kospi, South Korea, suffered 2%, while shares in Shanghai remained virtually unchanged.
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Elaine Kurtenbach, AP business writer, collaborated.