The Dow Jones Industrial Average fell Friday, after major U.S. banks reported fourth-quarter earnings. The market didn’t seem to take too kindly to the reports—and economic data also disappointed.
The Dow slid 202 points, or 0.6%, on Friday, after the index fell 176 points Thursday. The S&P 500 rose 0.1%, while the technology-heavy Nasdaq Composite —which tumbled 2.5% Thursday as technology stocks in particular came under pressure—gained 0.6%.
JPMorgan Chase (ticker: JPM) reported a profit of $3.33 a share, beating estimates of $3.01 a share on revenue of $30.35 billion, above expectations for $29.9 billion. The bank released $1.8 billion of loan loss reserves, without which the company would have missed earnings estimates. The stock fell 6.2%, after rising 5.7% for the month leading into earnings.
Wells Fargo (WFC) reported a profit of $1.38 a share, beating estimates of $1.13 a share on revenue of $20.9 billion, above expectations for $18.8 billion. The stock gained 3.7%. The stock had been up 14.5% for the month leading into earnings.
The company cited “soft demand” as one reason that loan balances were lower. Though the firm didn’t expand on that in its earnings release, markets do not want to see higher interest rates coinciding with weakening loan demand.
Citigroup (C) reported a profit of $1.46 a share, beating estimates of $1.38 a share, on revenue of $17 billion, above expectations for $16.8 billion. The bank’s loans stood at $668 billion, down 1% year-over-year. Citi stock fell 1.3%, after rising 9% for the month leading into earnings.
Markets were also sifting through economic data Friday. Retail sales fell1.9% month-over-month in December, missing expectations for a 0.1% decline and sharply dropping off from a 0.3% rise in November.
“While the overall level of retail sales is high and remains strong, the December blip is likely influenced by consumers buying early, fearing well published reports of supply shortages and delivery concerns and the inability of retailers to deliver goods timely for Christmas,” wrote Jamie Cox, managing partner for Harris Financial Group.
A harsh dropoff in retail spending seems highly plausible. Core retail sales spending had been running at an annual rate of almost $420 billion in late 2021, according to 22VResearch. That’s almost 25% higher than the pre-Covid trend, so in recent months it has been falling back downward.
That’s not a pretty sight for stock investors, but markets will watch to see if the weak retail sales results will become a problem for broader economic growth or if it means consumers are starting to shift their spending from goods to services, results of which have been hurt by the pandemic.
“The retail sales number was ugly, there’s no getting around it,” said Cliff Hodge, chief investment officer at Cornerstone Wealth.
Industrial production fell 0.1% month-over-month in December, lower than the forecast of a 0.3% gain.
The stock market is in the process of reflecting higher interest rates and less liquidity injected into markets from the Federal Reserve, which is now projected to raise interest rates three times this year and reduce the size of its balance sheet at some point to combat inflation.
The interest rates market is now reflecting a 96% chance that the first hike will be in March, up from 90% just days ago. Citigroup economists wrote that the market expects three to four hikes this year.
While interest rates across the board have already risen, the stock market may still be reflecting the risk to economic growth. The S&P 500 is almost 3% below its all-time high, hit earlier in the month.
“The overall market, it’s going to be challenging to make much headway given what the trajectory looks like for the Fed and rising interest rates,”said Yung Yu Ma, chief investment strategist at BMO Wealth Management. “That’s going to continue to be cause for a choppy market.”
It’s no surprise that value stocks, largely more economically-sensitive—underperformed growth and technology names Friday. Financials were hit hard—and the sector accounts for a large portion of large market capitalization value stocks.
The Financial Select Sector SPDR Exchange-Traded Fund (XLF), which rallied more than 4% for the year through Thursday, fell 1.2% Friday. That caused the Vanguard S&P 500 Value ETF (VOOV) to drop, ending the day down 0.2%, as financials are the largest sector in the fund, accounting for almost a quarter of the fund’s aggregate market value.
But it wasn’t just financials doing all the damage.
Without the gains in tech, the indexes would be noticeably lower. The Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which weights each stock in the index equally, dipped 0.2%. That’s worse than the regular index, the movements of which are heavily influenced by companies with larger market values.
In the commodity space, crude prices continued to march higher. Futures for West Texas Intermediate crude rose more than 2%, topping $84 a barrel.
Here are seven stocks on the move Friday:
SAP (SAP) was up 2.2% after the German software group reported that revenue from its cloud-computing business rose 28% in the last quarter.
Novavax (NVAX), Moderna (MRNA) and Pfizer (PFE) fell 1.4%, 2.6% and 1.1%, respectively, after the Supreme Court blocked the Biden administration’s vaccine mandate for companies with 100 workers or more.
Las Vegas Sands (LVS) jumped 14.2%; shares in the casino giant have been rising this week as some analysts see a brighter future for the stock in 2022 after a significant underperformance last year. Peer Wynn Resorts (WYNN), which faced similar pressures in 2021—including regulatory concerns from China—rose 8.6%.