Company / Analytics

Week 2 in Brief

How did the major indices perform?

US stocks sank on Friday as investors digested disappointing bank earnings and a December slump in retail sales. The three major indexes registered their largest one-week drop since October despite President-elect Joe Biden announcing a $1.9 trillion COVID-19 relief plan.

• On Friday, the Dow Jones Industrial Average lost 177.26 points, or 0.6%, to close at 30,814.26, after dropping by as many as 378.85 points at Friday’s low; the S&P 500 closed down 27.29 points, or 0.7%, at 3,768.25; while the Nasdaq Composite dropped 114.14 points, or 0.9%, to 12,998.50.
• Major benchmarks notched weekly declines, with the Dow off 0.9%, and the S&P 500 and Nasdaq both down 1.5%. Meanwhile, the small-cap Russell 2000 bucked the trend, gaining 1.5% for the week.

What drove the market?

• Corporate earnings: Fourth-quarter earnings kicked off this week, with JPMorgan beating revenue and profit expectations. The bank reported a 42% jump in net income, bolstered by the release of $2.9 billion in loan-loss reserves. Other firms posted fewer positive results. Citigroup’s revenue landed above estimates, but weaker-than-expected performance in its fixed-income division contributed to a miss on quarterly earnings. Wells Fargo shares slid after the firm’s fourth-quarter revenue came up short of analyst estimates.
• Coronavirus stimulus: Biden on Thursday evening outlined a coronavirus relief plan that included $1,400 cash payments to households, supplemental unemployment payments, and money for distributing COVID-19 vaccines, among other items. The prospects of additional stimulus, coupled with strong consumer spending at the start of the month, was enough for Bank of America to lift its near-term growth outlook. The bank’s economists lifted their forecast for first-quarter growth in the US to 4% from 1% and boosted their full-year GDP estimate to 5% from 4.6%.
• Politics: Worries over the potential for tax increases in the future could limit upside after the market’s strong run-up in anticipation of the package, analysts said. While Democrats will control the House and Senate, wrangling likely lies ahead given the party’s slim advantage in an upper chamber that will be effectively split 50-50, with Vice President-elect Kamala Harris serving as a potential tiebreaker.
• Vaccines: Concern over a slow rollout of COVID-19 vaccines has also weighed on sentiment. On Friday, Pfizer Inc. confirmed it will temporarily reduce deliveries to Europe of its COVID-19 vaccine while it upgrades production capacity to 2 billion doses a year. Pfizer shares dipped 0.1% on Friday.
• Economic data: Disappointing retail sales weighed on bullish sentiments. US retail spending contracted 0.7% in December as COVID-19 restrictions offset holiday-season sales, according to Census Bureau data published Friday. Economists surveyed by Bloomberg expected sales to stay flat from the month prior. However, December industrial production rose 1.6%, topping forecasts of a 0.4% rise, but the New York Federal Reserve Bank’s Empire State Index showed factory activity in New York fell for a fourth straight month. A reading on consumer sentiment this month fell slightly to 79.2 from 80.7 in December, according to an index produced by the University of Michigan.

Stocks in focus

• Wells Fargo shares fell 7.8%, closing the week at $32.04 after the bank delivered a fourth-quarter profit that topped consensus for the first time in six quarters, but saw revenue fall more than forecast as lower interest rates curtailed net interest income.
• Citigroup shares lost 6.9%, closing at $64.23 after earnings topped expectations but revenue fell short.
• Energy stocks joined sinking financials as the biggest underperformers in the S&P 500. For instance, Exxon Mobil Corp shares closed 4.8% (at $47.89) lower after The Wall Street Journal reported that the Securities and Exchange Commission launched an investigation into allegations that an employee of the oil giant overstated the value of a key Permian Basin asset
• Tesla shares lost 2.2% after Wedbush analyst Dan Ives raised his stock price target by 33%, but still didn’t recommend investors buy the stock. Shares closed at $826.16.
• Airline stocks slumped as investors assessed a choppy vaccine rollout. Shares of United Airlines fell 5.1% while American Airlines lost nearly 4%, closing at $43.89 and $15.76 respectively.
• Meanwhile, dating site Bumble said Friday it had filed for an initial public offering.

How did the European markets perform?

• European stocks snapped four weeks of gains on Friday, as the prospect of tighter lockdowns, slow vaccine shipments to the continent, and resurgent coronavirus cases in China dampened hopes of a speedy economic recovery.
• The pan-European STOXX 600 index closed down 1% in its worst session since Dec. 21, with losses accelerating after Wall Street stocks tumbled following big bank earnings. The STOXX 600 logged a 0.8% weekly decline, its first weekly decline since mid-December.
• The German DAX dropped 1.4% and France’s CAC 40 fell 1.2%. UK’s FTSE 100 declined 1% despite data showing that Britain’s economy recorded a smaller-than-expected contraction in November.
• Mining and oil & gas sectors slumped 3.1% and 2.6%, respectively, after Chinese authorities put more than 28 million people under new lockdowns, raising concerns about demand from the major consumer of commodities.
• German business software group SAP stocks closed down 0.7%, reversing early gains after it released preliminary annual results that came at the high end of guidance.
• Siemens Energy AG fell stocks 6.3% after General Electric accused a subsidiary of the power distribution company of using stolen trade secrets to rig bids for lucrative contracts, while French grocer Carrefour fell almost 3% after the French government all but killed off a possible $20 billion takeover by Canada’s Alimentation Couche-Tard.

How did Asian markets perform?

• Asian markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.27% and the Shanghai Composite rose 0.01%. The Nikkei 225 lost 0.62%.
• The US Defense Department on Thursday added nine Chinese firms, including Xiaomi, to a list of companies the agency claims are owned or controlled by China’s military. Businesses on the list are subject to harsh restrictions, including a ban on American investment. The Hang Seng Tech Index, which tracks the performance of Chinese tech stocks, fell 1.4%. Xiaomi was the worst performer on the index on Friday. The ban will cause “immediate selling pressure” on Xiaomi’s stock, but will have little impact on the company’s operations, analysts from Citi said in a research report on Friday.
• Meanwhile, Chinese technology company Huawei is backtracking on a patent application it filed for a facial recognition system intended to identify Uyghurs from other Chinese ethnicities.

Commodities and other assets

• Oil prices sank as the stronger dollar cut into its recent climb and as China began to impose lockdowns. West Texas Intermediate crude fell as much as 3.3%, to $51.83 per barrel. Brent crude, oil’s international benchmark, dropped 3.2%, to $54.64 per barrel, at intraday lows.
• Gold futures were under pressure as the dollar gained, and declined 1.2% to $1,829.90 an ounce, down $21.50.
• The yield on the 10-year Treasury note fell about 3 basis points to 1.095% as investors parsed the stimulus aid proposal. Yields and bond prices move in opposite directions.
• Meanwhile, Bitcoin dropped below $36,000 as the cryptocurrency’s volatile trading week came to a close. The token climbed back above $40,000 on Thursday but failed to retake the record highs seen one week ago.

Currencies

• The USD rose across the board to hit a four-week high against a basket of currencies on Friday, as data showing the COVID-19 pandemic’s continuing toll on the economy boosted demand for the safe-haven currency.
• The ICE U.S. Dollar Index was 0.56% higher at 90.773, on pace to finish the week up 0.8%, it’s best weekly showing in 11 weeks.

Next week

• The earnings season continues in the US, with Goldman Sachs, Bank of America, Netflix, UnitedHealth Group, Procter & Gamble, and Morgan Stanley, and other companies expected to report earnings.
• In Politics, the Biden Administration will officially take over the leadership of the United States after the inauguration on Wednesday, January 20.
• Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.