Mixed finish on Wall Street as worldwide rally takes a pause

AP – Wall Street tapped the brakes on its recent record-setting rally on Friday with a mixed finish for the major stock indexes, though the S&P 500 still ended the week with its third weekly gain in four.

The benchmark index fell 0.3 per cent, snapping a three-day winning streak, but notched a 1.9 per cent gain for the week. The Nasdaq eked out another record high. So did the Russell 2000 index of smaller companies, which traders have been favoring amid expectations of stronger economic growth later this year.

The uneven finish for United States (US) stock indexes followed a slide in global markets that began in Asia amid worries about resurgent coronavirus cases in China and weak economic data from Europe. In the US, disappointing earnings reports from IBM and some other companies gave cover for investors to sell and book profits after big recent gains.

“The big picture is, it’s still a pretty friendly environment for stocks,” said Head of Americas Equities of UBS Global Wealth Management David Lefkowitz. “The pandemic will wind down, you’ll see a surge in corporate profits this year and the Federal Reserve made very clear they’re not going to take the punch bowl away anytime soon.”

The S&P 500 slipped 11.60 points to 3,841.47.

Traders work on the floor during the United Wholesale Mortgage IPO. PHOTO: AP

The index was coming off two straight all-time highs. The Dow Jones Industrial Average dropped 179.03 points, or 0.6 per cent, to 30,996.98. The Nasdaq inched up 12.15 points, or 0.1 per cent, to 13,543.06. The Russell 2000 added 27.34 points, or 1.3 per cent to 2,168.76.

Investors weighed another batch of company earnings reports on Friday. The big theme in the early part of this earnings season is that most companies are handily beating Wall Street’s profits expectations for the last three months of 2020, with banks and some other industries leading the way. About 13 per cent of the companies in the S&P 500 have reported results so far.

“Earnings have been spectacular,” said Global Investment Specialist at JP Morgan Private Bank David Lyon.

Seagate Technology fell 4.7 per cent despite joining that cavalcade of companies reporting better earnings than analysts expected. It also gave a forecast for revenue and profit in the current quarter that matched or topped Wall Street’s. Analysts said a lot of that optimism may have already been built into the stock’s price.

IBM dropped 9.9 per cent for the market’s sharpest loss after reporting weaker revenue for the last three months of 2020 than analysts had forecast. The tech giant’s revenue has been mostly shrinking for years. IBM nevertheless also reported a higher-than-expected profit.

Markets have been mostly rallying recently on hopes that COVID-19 vaccines will lead to a powerful economic recovery later this year as daily life gets closer to normal.

Hopes are also high that Washington will deliver another dose of stimulus for the economy now that the White House and both houses of Congress are under single control of the Democrats.

US President Joe Biden has proposed a USD1.9 trillion plan to send USD1,400 to most Americans and deliver other stimulus for the economy. But his party holds only the slimmest possible majority in the Senate, raising doubts about how much can be approved. Several Republicans have already voiced opposition to parts of the plan.