Company / Analytics

Week 3 in Brief

How did the major indices perform?

U.S. stocks finished mixed after posting fresh record highs earlier in the week; the Nasdaq logged record high, but the Dow and the S&P 500 ended lower as investors weighed the outlook for President Joe Biden’s proposed fiscal stimulus and grew concerned amid reports that the new coronavirus variant may be deadlier.

• On Friday, the Dow Jones Industrial Average lost 179.03 points to reach 30,996.98, a decline of 0.6%; the S&P 500 closed 11.60 points lower, or 0.3%, at 3,841.47; while the Nasdaq Composite gained 12.15 points, 0.1%, to close at a record high at 13,543.06.
• For the week, the Dow gained 0.6%, the S&P 500 was up 1.9%, and the Nasdaq jumped 4.2%.
• Meanwhile, the small-cap Russell 2000 which rallied 1.3% on Friday to close at a record high at 2,168.76, finished the week up around 2.2%.

What drove the market?

• Coronavirus reports: Investors found few reasons to buy stocks on Friday after a round of records this week, with the acceleration of new coronavirus cases and lockdowns around the globe undermining support for equities. The UK government reported that there is some evidence the new variant of the coronavirus first identified in the UK may be up to 30% more deadly than previous variants and announced that the country’s current lockdowns could last into the summer. COVID-19 cases are also being reported again in China for the first time in months, with 103 new infections, while Hong Kong has seen its first lockdown, just ahead of Lunar New Year festivities, a popular holiday in Asia.
• Economic data: IHS Markit purchasing managers surveys for U.S. service and manufacturing sectors for January posted good results, compared with December. The index for services—by far the largest sector of the economy—rose to a two-month high of 57.5 in January from 54.8 in the prior month, while a survey for the U.S. manufacturing sector climbed to a record 59.1 from 57.1. Both readings suggest that the U.S. economy is getting off to a solid start in 2021 as strong demand lifts manufacturers and service businesses alike. The National Association of Realtors also reported that U.S. existing home sales in December increased less than 1% to 6.76 million.
• Politics: A Senate committee on Friday overwhelmingly supported former Fed Chair Janet Yellen as Biden’s Treasury secretary. If confirmed, she would be the first woman to lead the department. Meanwhile, investors are concerned that impeachment proceedings in the Senate against former President Donald Trump may delay progress on Biden’s fiscal stimulus bill. The House voted last week to impeach Trump, for a second time, and the impeachment articles are expected to be delivered to the Senate on Monday.
• Corporate earnings: Investors digested quarterly results from several companies this week, notably Netflix whose stock surged nearly 18% following its Q4 earnings report that beat analyst expectations. On Friday, the focus was on Intel Corp. whose shares slumped after posting results late Thursday on its plans to address longer-term problems.
• Coronavirus stimulus: Investors reassessed the outlook for President Joe Biden’s ambitious Covid-19 stimulus plan. A growing number of Republicans have expressed doubts over the need for another stimulus bill, especially one with a price tag of $1.9 trillion proposed by Biden. Democratic Sen. Joe Manchin criticized the size of the proposed stimulus checks. Dissent from either party carries weight for Biden, who took office with a slim majority in Congress. Analysts note that the political reality of Washington is starting to impact markets, and it’s becoming more unclear when Democrats’ ambitious stimulus goals will become law. Cyclical sectors, or those that would benefit most from an additional stimulus, have put pressure on the broader market this week. Energy, financial, and materials were the biggest laggards, losing at least 1% each this week.

Stocks in focus

• Walt Disney stock was upgraded to buy from neutral at UBS, with the broker lifting its price target on the entertainment giant to $200 from $155. Shares were up 0.9%, closing at $ 172.78.
• IBM stock closed down nearly 10% at $118.61 a day after its quarterly update.
• Shares of Schlumberger were in focus after the oil services company topped profit forecasts, and beat revenue expectations for the first time in four quarters. Shares closed 0.9% higher, at $24.41.
• Shares of Climate Change Crisis Real Impact I Acquisition Corp. soared nearly 65% after the special-purpose acquisition company announced a deal in which EVgo Services LLC will go public. EVgo, which boasts being the “nation’s largest electric vehicle public fast-charging network,” said it expects $575 million in proceeds from the merger deal.
• GameStop Corp shares gained 51% Friday, putting it on track for a record. The stock closed at $65.01 as investors looking to thwart short sellers piled further into the stock and triggered a trading halt.

How did the European markets perform?

• European stocks ended lower on Friday, closing out another lackluster week as business activity in the eurozone shrank in January after stringent lockdowns to control the coronavirus pandemic shuttered many businesses.
• The pan-European STOXX 600 Index fell 0.6%, but clung to a small 0.2% rise for a week, dominated by hopes for massive U.S. stimulus under President Joe Biden.
• Travel and leisure stocks fell 2.5%, leading declines among sectors amid concerns over fresh travel restrictions in Europe. Other economically sensitive sectors like banks, oil & gas, and mining shed more than 1%. The auto-heavy German DAX fell 0.2%, France’s CAC 40 dropped 0.6%, and eurozone stocks were down 0.6%.
• The UK’s FTSE 100 fell 0.3% and midcap stocks slid 1.0% after Britain’s retail sales marked a weak end to their worst year on record in December, while business activity contracted sharply in the latest month.
• European stocks: Helping limit losses in Germany’s DAX, engineering group Siemens AG jumped 7.3% on stronger-than-expected preliminary results for its first quarter. Siemens AG stock closed at 132.80 EUR. Meanwhile, the world’s largest carmaker Volkswagen rose 1.9% as a rebound in premium car sales in China and stronger fourth-quarter deliveries helped keep it in the black last year, though its profit almost halved due to the impact of the pandemic. Volkswagen stock closed at 165.08.

How did Asian markets perform?

• Asian markets finished broadly lower on Friday with shares in Hong Kong leading the region. The Hang Seng is down 1.62% while Japan’s Nikkei 225 is off 0.44% and China’s Shanghai Composite is lower by 0.40%.
• Alibaba founder Jack Ma appeared in public for the first time in nearly three months, speaking via a video link at a philanthropic event on Wednesday, according to a Chinese media report. Alibaba’s Hong Kong-listed shares jumped on the news and were up 6% in Wednesday afternoon trading. It was the first time Ma appeared in public since Oct. 24, when the founder of Alibaba and controlling shareholder of Ant made a controversial speech at a financial forum in Shanghai, criticizing regulators for stifling financial and technological innovation.

Commodities and other assets

• Oil futures fell but remained above the $50 support level as the spread of COVID-19 in Europe and Asia came into focus. March futures fell 86 cents, or 1.6%, to settle at $52.27 a barrel on the New York Mercantile Exchange.
• Gold futures retreated as the dollar edged up, with the February contract losing $9.70, or 0.5%, to settle at $1,856.20 an ounce.

Currencies

• The USD weakened against a basket of Group of 20 currencies, and Treasury yields fell slightly. The ICE USD Index was up 0.1% on the day but headed for a weekly decline of 0.5%. In afternoon trading Friday, the dollar rose 0.3% against the yen to 103.815. The euro was little changed at $1.2167.
• Meanwhile, the yield on the 10-year Treasury note slipped about 3 basis points to around 1.085% as investors took a risk-off tone Friday. Yields and bond prices move in opposite directions.

Next week

• Investors will be focused on the busy earnings season in the US which will see earnings from BigTech stocks Apple, Tesla, Facebook, Microsoft, Honeywell, and General Electric among others.
• The Federal Reserve will also hold its first monetary policy meeting of the year next week.
• Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.