NEW YORK (AP) – Stocks fell on Friday after reports showed the pandemic was deepening the economy as Washington prepared to throw another lifeline.
The S&P 500 fell 0.5% in afternoon trading, with the shares of the companies most in need of a healthier economy being the strongest losses. The Dow Jones industrial average fell 99 points, or 0.3%, to 30,892 at 2:30 p.m. Eastern Time, and the Nasdaq composite was 0.5% lower.
Treasury yields declined as reports showed buyers withheld during the holidays and feel less confident, the last of a litany of discouraging data about the economy.
Stocks have been depleted since the S&P 500 hit a record a week ago amid optimism that COVID-19 vaccines and more incentives in Washington will bring an economic recovery. The S&P 500 is down 1.2% this week, which would be its first in the last three.
Friday gave traders first chance to act after President-elect Joe Biden revealed details of a $ 1.9 trillion plan to support the economy. He demanded $ 1,400 in cash payments for most Americans, an extension of temporary benefits for laid-off workers, and pressure to get COVID-19 vaccines to more Americans. It has certainly met investors’ expectations for a big and bold plan, but the markets have already gathered strongly in anticipation of it.
“To some extent, most of this optimism has been assessed, but the huge numbers have also called for some contemplation on whether the necessary bipartisan support will materialize for this huge amount,” IG’s Jingyi Pan 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 narrowest margin in the Senate. This could hinder the chances of the plan passing.
The urgency of providing such aid is growing day by day. On Friday, a report showed that retail sales fell 0.7% in December, a crucial month for the industry. The reading was much worse than the 0.1% increase that economists expected and it was the third consecutive month of weakness.
Other reports show that a preliminary reading on consumer sentiment has weakened more than economists expected, while wholesale inflation it remains low as the pandemic worsens keeps a cap on prices and economic activity. They follow a grim report on Thursday, which shows that the pace of layoffs is accelerating across the country.
The decline in bank stocks was one of the heaviest in the market, even though several of the biggest names in the industry reported stronger profits at the end of 2020 than analysts expected. JPMorgan Chase fell 1.1%, for example, while Wells Fargo decreased by 6.9%.
While the overall results were good, “the bank gains did not surprise anyone exactly,” said JJ Kinahan, chief strategist at TD Ameritrade.
Banking stocks rose in previous weeks, expecting a stronger economy later this year and higher interest rates would mean higher profits from borrowing.
Like banks, the shares of smaller companies have also fallen 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 a stimulus from Washington than their larger rivals, in part because they tend to have smaller financial pillows.
The Russell 2000 small-cap stock index fell 1%.
Even with Friday’s declines, which have diminished over the course of the day, the ability to see brighter economic conditions in the future as vaccines are launched continues to keep stocks close to records and Treasury yields close to the highest since last spring. Russell 2000 also remains 8% higher for 2021 so far, beating the S&P 500 by 0.6%.
A big question for investors is what a big stimulus for the Washington economy would mean for interest rates.
“There are consequences to putting money in the system and the consequence is inflation,” Kinahan said.
Treasury yields have risen amid expectations that the government will have to borrow much more money to pay its stimulus, as well as rising forecasts for growth and inflation. The 10-year Treasury yield rose more than 1% last week for the first time since last spring and briefly exceeded 1.18% this week.
This raises concerns about how many interest rates can go before disturbing the stock market. Federal Reserve Chairman Jerome Powell contributed to the calm some of these concerns with comments that investors considered prone to lower rates for longer.
The 10-year Treasury yield fell to 1.09% from 1.11% late Thursday.
On the European stock markets, the German DAX lost 1.4% and the CAC 40 in France fell by 1.2%. London’s FTSE 100 fell 1%.
In Asia, the Japanese Nikkei 225 fell 0.6%, while Hang Seng in Hong Kong recovered to close with a 0.3% increase. Kospi in South Korea slipped by 2%, while stocks in Shanghai remained virtually unchanged.
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AP Business writer Elaine Kurtenbach contributed.