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NEW YORK (AP) – Stocks fell on Friday after reports showed the pandemic was digging the hole for the economy as Washington prepared to throw another lifeline on it.
The S&P 500 was down 0.5% in afternoon trading, with stocks of companies most in need of a healthier economy taking the biggest losses. The Dow Jones Industrial Average was down 99 points, or 0.3%, at 30,892 at 2:30 p.m. EST, and the Nasdaq composite was 0.5% lower.
Treasury yields also fell as reports showed buyers were restrained in spending during the holidays and feel less confident, the latest in a litany of disheartening data on the economy.
Stocks have run out since the S&P 500 hit a record a week ago, in optimism that COVID-19 vaccines and other stimulus from Washington will bring an economic recovery. The S&P 500 is on track for a 1.2% drop this week, which would be its first in the past three.
Friday offered traders the first chance to act after President-elect Joe Biden unveiled details of a $ 1.9 trillion plan to support the economy. He called for cash payments of $ 1,400 for most Americans, the extension of temporary benefits for laid-off workers, and pressure to get COVID-19 vaccines to more Americans. It certainly matched investors’ expectations for an ambitious and bold plan, but the markets had already rallied sharply in anticipation of it.
“To a certain extent, most of that optimism had been taken on board, but the huge numbers had also prompted reflection on whether the necessary bipartisan support will materialize for this huge sum,” said Jingyi Pan of IG in a comment. “The market seems to be playing it safe,” she said.
Biden’s Democratic allies will have control of the House and Senate, but only by the tiniest of Senate margins. This could affect the chances of adopting the plan.
The urgency to provide such help is increasing day by day. A report on Friday showed retailer sales fell 0.7% in December, a crucial month for the industry. The reading was much worse than the 0.1% growth expected by economists, and it was the third consecutive month of weakness.
Other reports have shown that a preliminary reading on consumer sentiment has weakened more than economists expected, while inflation at the wholesale level remains low as pandemic worsens limits prices and economic activity. They are following a dismal report from Thursday showing the pace of layoffs is accelerating across the country.
The decline in bank stocks was among the heaviest in the market, even as several of the biggest names in the industry reported higher profits for the end of 2020 than analysts expected. JPMorgan Chase fell 1.1%, for example, while Wells Fargo fell 6.9%.
While the overall results have been good, “bank earnings haven’t really impressed anyone,” said JJ Kinahan, chief strategist at TD Ameritrade.
Bank stocks had climbed in previous weeks on expectations that a stronger economy later this year and higher interest rates would mean bigger profits from the granting of loans.
Like banks, shares of small companies also fell more than the rest of the market, as in recent weeks. Small businesses are seen to benefit more from a healthier economy and Washington’s recovery than their larger rivals, in part because they tend to have smaller financial cushions.
The Russell 2000 Small Cap Index was down 1%.
Even with Friday’s declines, which lessened as the day wore on, the boil over more favorable economic conditions going forward as vaccines roll out continues to keep stocks near record highs. and Treasury yields close to their highest since last spring. The Russell 2000 also remains 8% higher for 2021 so far, dominating the S&P 500’s 0.6% gain.
A big question for investors is what the big stimulus in Washington’s economy would mean for interest rates.
“There are consequences to putting money into the system and the consequence is inflation,” Kinahan said.
Yields on Treasuries rallied amid expectations that the government will need to borrow significantly more money to pay for its stimulus measures, as well as higher expectations of economic growth and inflation. The 10-year Treasury yield jumped above 1% last week for the first time since last spring and briefly exceeded 1.18% this week.
This raises concerns that interest rates will rise before they disrupt the stock market. Federal Reserve Chairman Jerome Powell helped calm some of those concerns with comments that investors saw as a trend for lower rates for longer.
The 10-year Treasury yield plunged to 1.09% from 1.11% Thursday night.
On European stock markets, the German DAX lost 1.4% and the French CAC 40 fell 1.2%. The FTSE 100 in London was down 1%.
In Asia, Japan’s Nikkei 225 lost 0.6%, while Hong Kong’s Hang Seng rallied to close with a gain of 0.3%. The South Korean Kospi slipped 2%, while shares in Shanghai were largely unchanged.
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AP Business editor Elaine Kurtenbach contributed.
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