US stocks continue to trend downward amid retail sales report

1pm: US markets in red

US stocks continued to decline past the midday mark on Friday, as investors gauged reports on the disappointing US retail sales.

The Dow Jones Industrial Average lost 390 points, or 1%, at 35,723l; while the broader S&P 500 and tech-heavy Nasdaq Composite shed 0.6% and 0.4%, respectively.

“The afternoon session saw indices take a swift dive further into the red, but while most markets are still trading lower a small recovery off the lows has been witnessed,” said Chris Beauchamp, chief market analyst at online trading platform IG.

He noted: “Nonetheless the optimistic view has had a hard time prevailing this week, and it looks like investors continue to sell into strengthen, pointing towards a further negative atmosphere as the second half of January gets underway.”

Meanwhile, JP Morgan Chase shares dropped by over 5% after it released its fourth-quarter trading revenue and rising cost.

“Investors are going to be more demanding when it comes to company performance, and JPMorgan has felt the brunt of that today, down 5% in afternoon trading,” Beauchamp said. “Profits were up, but so were costs, and the bank couldn’t resist the opportunity to opine on what it thinks the Fed will do too, in this case going for a rather extreme ‘six or seven’ rate hikes for the year.”

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9.50am: US shares start mixed at end of week

US stocks started mixed and broadly lower on Friday as investors mulled over a disappointing retail sales report but tech stocks rallied.

In early deals in New York, the Dow Jones Industrial Average plunged over 253 points to stand at 35,859, while the broader-based S&P 500 index shed around 13 points at 4,644.

The tech-laden Nasdaq index was higher though, adding around eight points at 14,815.

In December last year, retail sales fell 1.9%, which was worse than the 0.1% drop, which had been pencilled in by economists. Industrial production also fell 0.1% compared to a projected gain of 0.2%.

Analyst Craig Erlam, at Forex firm Oanda said markets appeared a bit “directionless” after the retails sales release, which could mean investors didn’t know how to take the data.

“A strong report would have been positive for the economy but also feed into the argument for faster tightening, which is not being particularly well received at the moment. A few weak reports may, on the other hand, encourage caution from policymakers,” he suggested.

Also in focus Friday was earnings from big banks, though they seemed to underwhelm investors.

Citigroup, for example, saw shares drop 2.3% as it beat revenue estimates but profits fell 26%.

6.30am: US stocks seen opening up

US stocks are expected to open higher on the final trading day of the week, reversing some of Thursday’s heavy losses after negative economic data and bearish comments from officials of the Federal Reserve inspired a tech-led sell-off.  

Futures for the Dow Jones Industrial Average rose 0.28% in Friday pre-market trading, while the broader S&P 500 index added 0.17% and those for the tech-heavy Nasdaq 100 gained 0.02%.

Stocks closed lower on Thursday as weekly jobless claims for first-time unemployment filings unexpectedly rose last week and the producer price index (PPI) jumped by the largest amount since 2010. 

Also, at separate events, Fed officials including governor Lael Brainard, Chicago Fed President Charles Evans, and Philadelphia Fed President Patrick Harker emphasised the need for tighter monetary policy, with a March interest-rate hike becoming increasingly likely. 

The Dow slipped 0.49% to 36,114, while the S&P 500 fell 1.4% to 4,659 and the Nasdaq sank 2.51% to 14,807.    

“Optimism about a less dovish speech from the Federal Reserve Chair Jerome Powell and a ‘not higher than expected’ inflation print earlier this week remained rather short-lived, as other FOMC officials didn’t beat about the bush and hinted at an imminent rate hike in the US,” commented Ipek Ozkardeskaya, a senior analyst at Swissquote.

“Rate-sensitive Nasdaq fell the most among the major US indices, as losses in the Dow Jones, which is believed to be better equipped to cope with higher rates remained limited.”

Investor attention shifts from macro data to corporate earnings as a couple of big banks are due to release their 4Q earnings today, including JP Morgan, Wells Fargo, BlackRock (NYSE:BLK) and Citigroup. 

“There is no doubt that financials will benefit from a rising interest rate environment,” Ozkardeskaya added.

“Banks already outperformed the S&P500 last year and the trend is expected to continue throughout this year. And of course, the earlier and steeper rate expectations are a boon for the bank earnings expectations.”

Story by ProactiveInvestors