NEW YORK (AP) – Shares are declining Friday after reports showed the pandemic is deepening the hole for the economy as Washington prepares to give a new lifeline.
The S&P 500 fell 0.5% in afternoon trading, while shares in companies most in need of a healthier economy suffered the biggest losses. The Dow Jones Industrial Average averaged 99 points (0.3%) at 30,892 at 14:30, and the Nasdaq Composite was 0.5% lower.
Treasury yields also fell as reports held back spending by reports during the holidays and feel less confident, the latest in a list of discouraging data on the economy.
Stocks have not gained steam since the S&P 500 reached a record high a week ago amid optimism that COVID-19 vaccines and more stimulus from Washington will bring economic recovery. The S&P 500 is down 1.2% this week, which would be the first in the last three.
On Friday, traders were given the first chance to act after President-elect Joe Biden unveiled details of a $ 1.9 billion plan to boost the economy. He called for $ 1,400 cash payments for most Americans, expanding the temporary benefits for laid-off workers and pushing for more COVID-19 vaccines to reach more Americans. It certainly fits investors’ expectations for a big and daring plan, but the markets have already risen sharply in anticipation of it.
“To some extent, most of this optimism has been praised, but the big figures have also asked for some consideration as to whether the necessary dual support for this large amount will materialize,” Jingyi Pan of IG said in a comment. “The market seems to be playing safe,” she said.
Biden’s Democratic allies will have control over the House and Senate, but only through the smallest margins in the Senate. This can hinder the chances of the plan being passed.
The urgency to provide such assistance is increasing by the day. Friday, a report showed retailer sales fell 0.7% in December, an important month for the industry. 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 reading on consumer sentiment weakened more than economists expected, while inflation was at the wholesale level stay low as the worse pandemic keep prices up and economic activity. They follow a sad report from Thursday that shows that the pace of layoffs across the country is accelerating.
Falling bank shares were some of the heaviest weights on the market, although several of the biggest names in the industry made a stronger profit by the end of 2020 than analysts had expected. JPMorgan Chase for example by 1.1%, while Wells Fargo it decreased by 6.9%.
Although the overall results were good, “bank earnings did not exactly wow anyone,” said JJ Kinahan, chief strategist at TD Ameritrade.
Bank shares have risen over the past few weeks with the expectation that a stronger economy later this year and higher interest rates would mean bigger gains from loans.
Like banks, shares of smaller companies have also fallen more than the rest of the market in a mirror image of recent weeks. Smaller businesses are seen as benefiting more from a healthier economy and stimulus from Washington than their larger competitors, in part because they tend to have smaller financial cushions.
The Russell 2000 index of small-cap stocks fell 1%.
Even with the decline of Friday, which has diminished over time, awareness of the brighter economic conditions that will occur in the future as vaccines expand continues to keep equities close to records and Treasury yields almost highest since last spring . The Russell 2000 remains 20% higher so far for 2021, rising above the S&P 500 profit of 0.6%.
A big question for investors is what the stimulus for the economy from Washington for interest rates would mean.
“There are consequences to putting money in the system, and the result is inflation,” Kinahan said.
Treasury yields have risen amid expectations that the government will have to borrow much more money to pay for its stimulus, as well as rising forecasts for economic growth and inflation. The yield on the 10-year treasury increased above 1% last week for the first time since last spring and this week briefly above 1.18%.
This raises concerns about how much further interest rates could rise before the stock market is disturbed. Federal Reserve Chairman Jerome Powell helped calm down some of these concerns with comments that investors viewed as tending to lower rates for longer.
Yields on the 10-year treasury fell from 1.11% late Thursday to 1.09%.
On European stock markets, the German DAX lost 1.4%, and the French CAC 40 by 1.2%. The FTSE 100 in London fell by 1%.
In Asia, the Japanese Nikkei 225 slipped by 0.6%, while the Hang Seng recovered in Hong Kong and closed with a gain of 0.3%. South Korea’s Kospi rose 2%, while shares in Shanghai remained virtually unchanged.
___
AP business writer Elaine Kurtenbach contributed.