Daily market review

United States

Profit-taking centered in cyclicals weakened equities Friday while defensive sectors and growth stocks held up best. The Dow Jones industrial index was off 0.6 percent, the S&P 500 fell 0.7 percent, and the NASDAQ 100 lost 0.9 percent.

Energy stocks lagged the most Friday, a partial reversal of their gains earlier in the week. Other cyclical laggards included financials, industrials, consumer discretionary, and materials, which have soared since the fall as positive vaccine news powered the recovery trade.

President-elect Biden's unveiling of his economic stimulus plan and pledge to step up pandemic control efforts mostly matched expectations. Investors remained focused on concerns about delays and shortages of vaccines while Covid cases and deaths continue to accelerate. Separately, some investors expressed fears about the prospect of higher corporate taxes, another market negative.

Several big banks kicked off earnings season with powerful beats but their stocks sold off briskly. Citigroup, for example, fell 6.9 percent as investors evidently were disappointed that credit losses did not decline more, and JP Morgan declined 1.8 percent despite a huge earnings beat as a large release of credit reserves lifted its earnings.

Holding up best among sectors were utilities, real estate, health care, and communications services.

Among companies in focus, Exxon Mobil fell 4.8 percent on a report the Securities and Exchange Commission is investigating the oil giant. Spotify, the audio streaming service, fell 6.6 percent on a downgrade at Citibank. Wells Fargo was the day's featured loser among financials as it fell 7.8 percent after reporting losses of $321 million on customer refunds.

In a day of mixed US economic reports, retail sales stood out with a 0.7 percent decline, the third consecutive monthly drop, and near the bottom of Econoday's consensus range. Meanwhile, industrial production jumped 1.6 percent in December with manufacturing volumes (which make up the great bulk of the report) up 0.9 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.48 to US$54.88 while spot gold declined US$22.12 to US$1,825.72. The US dollar rose against most major currencies. The US Treasury 30-year bond yield dipped 2 basis points to 1.85 percent while the 10-year note fell 3 basis points to 1.10 percent.


Renewed virus worries hit equities Friday as cases continued to surge in Europe and China imposed new lockdowns. The Europe-wide STOXX 600 dipped 1.0 percent, the German DAX fell 1.4 percent, the French CAC lost 1.2 percent, and the UK FTSE-100 was down 1.0 percent.

Equity indexes appeared overextended to the upside after recent gains on the recovery trade, and susceptible to corrective downward pressure headed into the weekend.

Among sectors, lagging were basic resources, oil & gas, autos & parts, banks, chemicals, technology, retail, construction, industrials, and real estate. Holding up best were health care, food & beverage, media, insurance, utilities, telecom, and travel & leisure.

Among companies in focus, Babcock International, the UK defense contractor, dropped 17 percent on a quarterly miss and bleak guidance. Akasol, the German battery maker, fell 7.5 percent on a downgrade at Stifel. Scandic Hotels fell 3.9 percent on disappointing quarterly results. Renault declined 3.8 percent on a downgrade at Goldman Sachs.

Asia Pacific

Major Asian markets posted mixed results Friday, with performance on the week also diverging across the region. Data published Friday provided limited guidance to trading, with Covid developments and US fiscal stimulus plans still the major focus for regional investors.

Japan's Nikkei and Topix indices underperformed Friday, closing down 0.6 percent and 1.0 percent respectively, but still finished the week with solid gains of 3.7 percent and 1.6 percent respectively. Hong Kong's Hang Seng index closed up 0.4 percent on the day and also performed well on the week with a gain of 2.6 percent, despite the ongoing impact of sanctions by US authorities on firms deemed to be linked to the Chinese military. The Shanghai Composite index closed flat on the day and was also little changed on the week, down just 0.1 percent. Australia's All Ordinaries index posted a small increase of 0.1 percent on the day and a fall of 0.5 percent on the week.

Japan's index of tertiary industry activity contracted 0.7 percent on the month in November after advancing 1.0 percent in October, and fell 3.7 percent on the year after dropping 1.9 percent previously. Weaker output was recorded in six of the eleven industry components of the main index, including retail trade and wholesale trade. Previously published Markit PMI survey data for the Japanese services sector indicated that activity in the sector contracted in both November and December but at a much more moderate pace than during the initial impact of the Covid-19 pandemic.

China's residential property prices advanced 3.8 percent on the year in December, based on a calculation using officially published data. This is down from an increase of 4.0 percent recorded in November using the same calculation and continues the trend of slowing growth in house prices seen since mid-2019.

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