US Stocks Tumble As Investors Assess Biden’s Stimulus Plan

Jan 25, 2021 09:35 PM ET
US Stocks Tumble As Investors Assess Biden’s Stimulus Plan
  • Financials and energy sectors dragged down both the Dow and S&P 500 as banks began reporting earnings with mixed signals, and the Exxon probe shook oil stocks.
  • Investors look concerned Biden’s stimulus plan may increase taxes.
  • Jobless claims and retail data depict continued economic weakness.

The major US stock indices closed lower Friday, with many ending the week in the red. The indices retreated as investors weighed the potential implications of President-elect Joe Biden’s stimulus plan on taxes and interest rates. 

First, it appears Wall Street expected a bigger coronavirus economic stimulus package than the $1.9 trillion Biden announced Thursday. Moreover, investors appear concerned that Congress may not approve the entire stimulus amount Biden has sought. Some parts of the plan will require more votes in Congress than Democrats have readily available. 

How Biden will fund the American Rescue Plan is another issue. The administration may seek to increase corporate taxes to fund the plan, but that could reduce corporate profits that may, in turn, affect dividends. 

If the administration decides to borrow more, investors fear interest rates would rise, which would make credit more expensive. The consequences for that could be many. For example, the flow of money into the stock market may reduce because cheap money made possible by low-interest rates has been central to the recent stock rally.

Moreover, interest rates going up because of increased government borrowing may leave those with mortgages with little room to invest in the stock market.

Rising jobless benefits claims also lingered in investors’ minds Friday. The number of people filing for benefits for the first time in the first week of 2021 soared to the highest level since the pandemic struck in March.

Downbeat retail sales data also appeared to dampen Wall Street sentiment. US retail sales continued to fall in December, a month that should typically be strong for the sector. The weak retail numbers continue to show that the much-needed economic recovery is still far.

Dow drops 177 points and ends the week in red

Dow Jones Industrial Average chart

The Dow Jones Industrial Average shed 177.26 points or declined 0.57% Friday to 30,814.26. The bears sought to take control, and immediate trading began, but the bulls swiftly countered. 

But the bears refused to go away and managed to drag the index down to 30,612.67 in the mid-morning session. But the bulls managed to bring the index back up and send it to a high of 30,941.98, and they could not sustain the support, and the day ended in bears' favor. The blue-chip index fell 0.91% for the week.

S&P 500 retreats as financials and energy drag

S&P 500 index chart

The S&P 500 lost 27.29 points or retreated 0.72% to 3,768.25. The bears sought to control the day right from the start, with the index plunging to 3,749.62 in the mid-morning session. The bulls tried to repel, at some point sending the benchmark up to 3,788.73, but they were exhausted, and the day ended in the bears' favor. 

Financials and energy sectors dragged both the S&P 500 and the Dow. Although JP Morgan and Citigroup reported fourth-quarter earnings that topped expectations, mixed results from Well Fargo caused investors to sour on bank stocks. Fargo stock fell 7.8%, dragging S&P 500 banks index lower. 

Exxon stock tumbled 4.8%, dragging down the energy sector. Exxon shares fell after a report said the SEC was investigating the oil major following a tipoff that it overvalued an important asset. The S&P 500 was down 1.5% for the weak.

Nasdaq Composite slides as regulations concerns weigh on the tech sector

Nasdaq Composite index chart

The Nasdaq Composite lost 114.14 points or declined 0.87% to 12,998.50. The bulls appeared to be in control at the start of trading, pushing the index to a high of 13,139.83 in mid-morning. But the bears overpowered them and swiftly reversed the index’s gains, sending it down to 12,949.76. 

A struggle ensued with control shifting between bears and bulls for several days. By late noon, it was clear that bulls were exhausted, and the bears carried the day. Concerns that the Biden administration and the Democratic-controlled Congress may pursue aggressive tech regulations appeared in investors' minds. The Nasdaq Composite fell 1.5% for the week.

The Russel 2000 declines but ends with a weekly gain

The Russel 2000 shed 32.15 points or declined 1.49% to 2,123.20. The index tracks America’s small-cap companies. The bears swiftly took control of the Russell 2000 stocks immediately after trading began, sending the index down to 2,102.53 by mid-morning. The bulls tried to take control but failed, and the day ended in bears' favor.

However, the Russel gained 1.5% for the week, making it the only major Wall Street stock index to end the week in green.

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