24 February 2021

Stocks Fall After Joe Biden Plan, Weak Retail Sales

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U.S. stocks fell after President-elect Joe Biden unveiled a $1.9 trillion Covid-19 relief plan and the December retail-sales report came in weaker than expected, underscoring the coronavirus pandemic’s continued effect on the economy.

The Dow Jones Industrial Average fell 250 points, or 0.8%, to 30741. The S&P 500 lost 1%, and the Nasdaq Composite fell 1% as well.

For several months, the markets have been riding a number of strong trends that have powered everything from large-cap stocks to bitcoin to record highs. Underlying all of it has been a bet on government and central-bank aid to offset the damage wrought by the pandemic.

Keeping up that momentum, though, is difficult. “However you look at it, we’re extended here,” said Frank Cappelleri, the executive director of brokerage Instinet.

If Friday’s losses persist to the closing bell, the major indexes would finish in the red, after setting fresh records last week. But investors have become conditioned to expect the market’s risk-on stance to continue, Mr. Cappelleri said, and this week’s trading isn’t likely to change that.

Investors aren’t likely to become concerned unless this week’s pause accelerates, if bond yields, for instance, continue to fall or the dollar weakness reverses substantially. “That could change a lot of what we’ve seen across asset classes,” he said.

The market wasn’t really thrown off by Mr. Biden’s stimulus plan, said Esty Dwek, the head of global market strategy at Natixis Investment Managers. It expected a large number, and expects, too, that Congress will likely produce a smaller package.

“It’s almost a buy-the-rumor, sell-the-fact trade,” she said.

While the aid package is designed to boost the economy, it could come with some direct ramifications for stock holders, said Wei Li, head of investment strategy for BlackRock’s exchange-traded fund and index investments for Europe, Middle East and Africa. “With the Senate majority, [taxes] could be coming in the medium term and that is something the market has to assess as well.”

Friday’s retail-sales report underscored the need for some kind of economic aid. U.S. consumers cut back on spending in December, the peak of the holiday season, as the country confronted a surge in coronavirus infections.

Investors are hoping that additional spending will help steer the U.S. economy through a winter that has seen high Covid-19 infection rates and worsening economic data. Figures released Thursday showed that the number of workers filing for jobless benefits posted its biggest weekly gain since the pandemic hit last March.

“When you see data this bad, you have to question if the prevailing expectation—for cyclical recovery to come through—if that would be shaken,” Ms. Li said.

Consumer confidence has been shaken a bit. The University of Michigan’s preliminary January consumer sentiment survey slipped to 79.2 from 80.7 in December. While the numbers are up from April’s low of 71.8, they are down more than 20% from the year ago level of 99.8. Consumer spending accounts for more than two-thirds of U.S. economic activity.

In corporate news, JPMorgan Chase fell 2.7% after the bank reported its highest-ever quarterly profit, though its full-year earnings fell 20%. Shares of Wells Fargo fell 7.4% after its revenue fell more than forecast, with lower interest rates weighing on net interest income. Citigroup slid 4.3%% as it reported fourth-quarter results.

Shares in Exxon Mobil dropped 4.8% after The Wall Street Journal reported that the Securities and Exchange Commission launched an investigation into the energy giant after an employee filed a whistleblower complaint last fall alleging that it overvalued one of its most important oil and gas properties.

In bond markets, the yield on the 10-year Treasury note ticked lower to 1.091% from 1.128% Thursday. Yields fall when bond prices rise.

Despite days that see a pullback in markets, investors still expect that the additional fiscal stimulus will support a rally in stocks this year.

“Ultimately, you can’t expect equities to go up every day in a straight line,” said Mike Bell, global market strategist at J.P. Morgan Asset Management. “The numbers are really quite incredible and I think it is going to all add up to a boom in growth once the vaccines are rolled out.”

Overseas, the pan-continental Stoxx Europe 600 fell 1.2%.

Trading in Asia ended on a mixed note. China’s Shanghai Composite was largely flat, while Hong Kong’s Hang Seng gained 0.3% and South Korea’s Kospi slid 2%.

In Hong Kong, shares in Xiaomi, a consumer electronics company that focuses on mobile phones and household appliances, closed 10% lower after the U.S. Department of Defense added Xiaomi to a list of companies it says support China’s military.

—An artificial-intelligence tool was used in creating this article.

Write to Paul Vigna at paul.vigna@wsj.com, and Caitlin Ostroff at caitlin.ostroff@wsj.com.

Click here for the original article.

 

 

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