U.S. stocks fell on Friday, pushing the Dow Jones Industrial average into the red for the week, as inflation fears overshadowed strong retail sales numbers and better-than-expected earnings reports.
The Dow lost roughly 330 points, or 0.94%, after opening above the 35,000 level. The S&P 500 dipped around 0.8% and the Nasdaq Composite shed about 0.8%. The three averages are on track to close the week in red. The Dow is down about 0.6% on the week, while the S&P 500 is roughly 1% lower and the Nasdaq Composite is around 1.9% lower during the same period.
A U.S. consumer sentiment index from the University of Michigan came in at 80.8 for the first half of July, down from 85.5 last month and worse than economists estimated, who projected an increase. The report released Friday showed inflation expectations rising, with consumers believing prices will increase 4.8% in the next year, the highest level since August 2008.
The Dow gave up its gain for Friday shortly after the University of Michigan report came out 30 minutes into the session. Losses increased as the day went on with major averages rounding out the day near their lows.
The consumer sentiment weakness “is at face value hard to square with the acceleration in employment growth and the continued resilience of the stock market,” said Andrew Hunter, senior U.S. economist at Capital Economics, but the report “suggested that concerns over surging inflation are now outweighing those positive trends.”
The market was held back all week by inflation fears although the S&P 500 and Dow did touch new all-time highs briefly. On Tuesday, the consumer price index showed a 5.4% increase in June from a year ago, the fastest pace in nearly 13 years.
Stocks got off to a good start Friday with the Dow rising more than 100 points to above 35,000 shortly after the open. Data released before the bell showed retail and food service sales rose 0.6% in June, while economists surveyed by Dow Jones had expected a 0.4% decline. If that level held, it would have been the Dow’s first close ever above 35,000.
Despite the week’s losses, the Dow is still up 13% for the year and sits just 1% from an all-time high. The S&P 500 is up 15% on the year and is about 1.4% below its record level.
“The market looks broadly fairly valued to me, with most stocks priced to provide a market rate of return plus or minus a few percent,” Bill Miller, chairman and chief investment officer of Miller Value Partners, said in an investor letter.
“There are pockets of what look like appreciable over-valuation and pockets of significant undervaluation in the US market, in my opinion. We can find plenty of names to fill our portfolios and so remain fully invested,” the value investor added.
Energy stocks, the hottest part of the market in 2021, fell into correction territory on Friday as oil prices pulled back from their highs. The Energy Select Sector SPDR Fund fell more than 2% on Friday, the worst of any group and bringing its losses from its high to 14%. Still, the sector is up about 29% in 2021, making it the top performer of any of the 11 main industry groups.
Weaker performance from technology stocks also weighed on the market Friday. Shares of Netflix fell ahead of the streaming giant’s second-quarter earnings report next week. Nvidia shares also dropped.
Investors digested strong earnings results from the first major week of second-quarter reports. Though some of the nation’s largest companies posted healthy earnings and revenues amid the economic recovery, the reaction in the stock market has so far been muted.
“Lately, you can almost guess where stocks are going by just checking the 10-year Treasury yield, which often moves based on perceptions of what the Fed might have up its sleeve,” said TD Ameritrade chief market strategist JJ Kinahan. “Earnings absolutely matter, but in the short term, the Fed is still the girl everyone wants to dance with.”
“Good earnings might have become an excuse for some investors to take profit. And with earnings expectations so high in general, it takes a really big beat for a company to impress,” Kinahan added.
The Financial Select Sector SPDR Fund is down this week despite big profit growth numbers posted by the likes of JPMorgan Chase and Bank of America.
For 18 S&P 500 companies that beat analyst estimates for second-quarter earnings this week, the average earnings-per-share result was 18% higher than expected. But those companies saw their shares fall 0.58% on average after reporting.
Much of the market’s upward pressure over the last week has come from a handful of mega-cap internet and communications stocks. Apple and Google-parent Alphabet are up this week.
— CNBC’s Maggie Fitzgerald and Michael Bloom contributed reporting.
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