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
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
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
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
“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.
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