NEW YORK (AP) – Stocks plummet Friday after reports show the pandemic deepens the hole for the economy as Washington prepares to throw a new lifeline at it.
The S&P 500 fell 0.5% during afternoon trading, with stocks of companies most in need of a healthier economy recorded the largest losses. The Dow Jones Industrial Average fell 99 points, or 0.3%, to 30,892, from 2:30 p.m. Eastern Time, and the Nasdaq composite was down 0.5%.
Treasury yields also fell as reports showed shoppers were reluctant to spend during the holidays and feel less confident, the latest in a litany of daunting data about the economy.
Stocks have been depleted since the S&P 500 hit an all-time high a week ago amid optimism that COVID-19 vaccines and more stimulus from Washington will bring an economic recovery. The S&P 500 is on track for a decline of 1.2% this week, which would be the first of the last three.
Friday offered traders first chance to take action after President-elect Joe Biden revealed details of a $ 1.9 trillion plan to support the economy. He called for $ 1,400 cash payments for most Americans, the expansion of temporary benefits for laid-off workers, and an effort to give COVID-19 vaccines to more Americans. It certainly matched investors’ expectations for a big and bold plan, but the markets were already well ahead of it.
“To some extent, most of this optimism was priced in, but the huge numbers also prompted reflection on whether the necessary bipartisan support will be realized for this massive amount,” IG’s Jingyi Pan said in a comment. “The market seems to be playing safe,” she said.
Biden’s Democratic allies will control the House and the Senate, but only with the smallest margins in the Senate. That could hinder the chance of the plan going ahead.
The urgency for providing such assistance is increasing day by day. On Friday, a report showed that sales at retailers fell 0.7% in December, a crucial month for the industry. The reading was much worse than the 0.1% growth economists expected, and it was the third straight month of weakness.
Other reports showed that a preliminary reading of consumer sentiment weakened more than economists expected, while wholesale inflation remains low as the worsening pandemic keeps an eye on prices and economic activity. They follow a gloomy report from Thursday showing that the pace of layoffs across the country is accelerating.
Falling bank stocks were some of the toughest weights in the market, even as several of the biggest names in the industry reported stronger earnings than analysts expected before the end of 2020. JPMorgan Chase for example, fell 1.1%, while Wells Fargo fell 6.9%.
While the overall results were good, “bank earnings were not really impressive,” said JJ Kinahan, chief strategist at TD Ameritrade.
Bank stocks had rallied in recent weeks on the expectation that a stronger economy later this year and higher interest rates would mean bigger gains from lending.
Just like banks, the shares of smaller companies also fell more than the rest of the market, in mirror image of recent weeks. Smaller companies benefit more from a healthier economy and stimulus from Washington than their bigger rivals, in part because they typically have smaller financial pillows.
The Russell 2000 index of small cap stocks fell 1%.
Even with Friday’s decline as the day progressed, the exuberance about better economic conditions going forward as vaccines hit the market, stocks close to records, and Treasury yields close to their highest since last spring. The Russell 2000 also remains 8% higher so far for 2021, skyrocketing above the 0.6% gain of the S&P 500.
A big question for investors is what a major boost to the economy from Washington would mean for interest rates.
“There are consequences of putting money into the system and the consequence is inflation,” said Kinahan.
Treasury yields have risen due to expectations that the government will have to borrow much more money to pay for its stimulus measures, and also as the outlook for economic growth and inflation is on the rise. The yield on the 10-year Treasury zoomed out above 1% for the first time since last spring last week, briefly reaching 1.18% this week.
That raises concerns about how much interest rates can go further before the stock market gets upset. Jerome Powell, chairman of the Federal Reserve, helped calm down some of those concerns with comments that investors leaned toward lower rates for longer.
The yield on the 10-year Treasury fell from 1.11% to 1.09% at the end of Thursday.
In European stock markets, the German DAX lost 1.4% and the French CAC 40 lost 1.2%. The FTSE 100 in London was down 1%.
In Asia, Japan’s Nikkei 225 fell 0.6%, while Hong Kong’s Hang Seng rebounded to close with a gain of 0.3%. South Korean Kospi fell 2%, while shares in Shanghai remained virtually unchanged.
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AP Business Writer Elaine Kurtenbach contributed.