The S&P 500 fell slightly on Friday, retreating from record levels, while the strength in major technology names pushed the Nasdaq Composite to another all-time high.
The broad equity benchmark dipped 0.3% to 3,841.47 after closing at a record in the previous session. The Nasdaq rose 0.1% to another record close of 13,543.06, supported by Big Tech. The Dow Jones Industrial Average slid 179.03 points, or 0.6%, to 30,996.98.
Dow-component IBM dropped 9.9% after the company reported fourth-quarter sales below analysts’ expectations. Revenue fell 6% on an annualized basis, the fourth consecutive quarter of declines. Intel shares retreated 9.3% following a 6% pop on Thursday after it released better-than-expected earnings.
Hopes for a robust earnings season from the largest communications and tech companies sparked a rally in mega-cap stocks during the holiday-shortened week, pushing the broader market higher. The Nasdaq climbed 4.2% this week, while the S&P 500 and the Dow gained 1.9% and 0.6%, respectively.
Apple rose another 1.6% Friday, bringing its weekly gain to 9.4%. Facebook and Microsoft also rallied 9.2% and 6.3%, respectively, this week. These big tech companies are scheduled to report earnings next week.
Investors reassessed the outlook for President Joe Biden’s ambitious Covid 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. Meanwhile, Democratic Sen. Joe Manchin has criticized the size of the latest round of proposed stimulus checks. Dissent from either party carries weight for Biden, who took office with a slim majority in Congress.
“The political reality of Washington is starting to impact markets, and it’s becoming more unclear when Democrats’ ambitious stimulus goals will become law,” said Tom Essaye, founder of Sevens Report.
Meanwhile, with the S&P 500 up another 2.3% this year, some investors believe the market may be getting ahead of itself as hiccups with the vaccine rollout and economic reopening remain likely going forward.
Meanwhile, 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.
Stock futures rise ahead of the busiest week of earnings
U.S. stock index futures were modestly higher in overnight trading on Sunday, as Wall Street prepares for the busiest week of earnings, which will include reports from some of the largest tech companies.
Futures contracts tied to the Dow Jones Industrial Average gained 56 points, indicating a 73-point jump at the open. S&P 500 futures advanced 0.2%, while Nasdaq 100 futures rose 0.28%.
Lindsey Bell, chief investment strategist for Ally Invest, noted any additional stimulus could lead to a surge in inflation.
“Right now, watch for signs of inflation as a temporary or more long-term trend. If it’s just a quick shock, we may see some market weakness without any major Fed action,” she noted. “On the other hand, persistently high inflation may force the Fed to consider raising rates and pulling back their market support.”
In an inflationary environment, Bell said investors should favor the consumer staples, energy and financials sectors. She added that real estate and gold are among the other assets that can help hedge against inflation.
Reference: CNBC
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