An increasingly optimistic outlook on the U.S. economy led investors to dump government bonds and pile into economically sensitive sectors of the stock market on Friday.
The S&P 500 ticked higher 0.2%. The Nasdaq Composite added 0.4%. The Dow Jones Industrial Average added around 88 points, or 0.3%.
In bond markets, the yield on the 10-year Treasury note rose to 1.335%, from 1.286% on Thursday.
The jump in stocks and bond yields comes as fresh economic data has stoked enthusiasm about the U.S. recovery. On Friday, new data showed that business activity in the U.S. private sector held up, boosted by accelerating service activity and manufacturing output. That followed a report Wednesday that showed consumers used stimulus checks to boost retail spending in January to the largest increase in seven months. Some economists have increased estimates of gross domestic product for the first quarter of the year.
JPMorgan Chase & Co. strategists said Friday that they expect consumers to shatter expectations for the rest of the year given expected fiscal stimulus and economic reopening as the pandemic eases. Meanwhile, Federal Reserve Bank of Boston President Eric Rosengren said he expects the economy to pick up steam this year as vaccines as distributed.
Here’s what we’re watching ahead of Friday’s trading action.
—U.S. stock futures edged lower Friday, putting the S&P 500 on track to end the week with muted gains after notching its ninth record closing high for 2021.
Futures tied to the S&P 500 slipped 0.3%, pointing to a drop after the opening bell. Contracts linked to the Nasdaq-100 Index edged down 0.3%, suggesting that technology stocks may also slip. Read our full market wrap.
What’s Coming Up
—The University of Michigan’s consumer sentiment index for the opening weeks of February, due at 10 a.m. ET, is expected to inch up to 80.8 from 79.0 at the end of January.
Market Movers to Watch
—All hail Baby Yoda. Walt Disney shares were up 0.9% ahead of the bell after the entertainment giant reported a first-quarter profit, as its flagship streaming service, Disney+, added more than 21 million new subscribers during the period. But the pandemic continued to zap results in the company’s movie-distribution and theme-park segments.
U.S. stock futures climbed Wednesday ahead of U.S. inflation data, suggesting that the major indexes will resume this month’s rally.
Futures tied to the S&P 500 and the Dow Jones Industrial Average gained 0.3%. Contracts on the technology-heavy Nasdaq-100 also advanced 0.3%. Both the S&P 500 and the Dow closed lower on Tuesday after notching record highs earlier in the week.
Stocks have pushed higher this month, with the benchmark S&P 500 notching its eighth record close of the year on Monday. Investors are betting that President Biden’s $1.9 trillion stimulus package will help bolster the economy while vaccinations help reduce Covid-19 fatalities. Investor sentiment has also been buoyed by companies’ quarterly results that have largely proved to be better than expected.
“As long as earnings estimates are going up, stocks are going up,” said Andrew Slimmon, a managing director and portfolio manager at Morgan Stanley Investment Management. “The magnitude of the earnings beats we have seen are so great because earnings have been way underestimated.”
Ahead of the opening bell, ride-hailing firm Lyft rose over 12% after posting a narrower annual loss, suggesting the company is moving toward profitability. Rival Uber Technologies is among the companies scheduled to release its results after the market closes. Uber rose more than 6% premarket.
U.S. stock futures ticked down Tuesday, suggesting that the major indexes may pause after closing at record highs.
Futures tied to the S&P 500 edged 0.2% lower, after the benchmark gauge posted its eighth all-time closing high of 2021 on Monday. Futures for the technology-focused Nasdaq-100 index also slipped almost 0.2% and contracts for the Dow Jones Industrial Average fell 0.2%.
Investors said markets are taking a breather following a broad advance in stocks and commodities. The recent rally has been fueled by expectations of a new dose of stimulus spending in the U.S., which could add impetus to the economic revival. That has helped pare expectations for turbulence in U.S. stocks, sending the Cboe Volatility Index down this week to less than 22, after the gauge surged to over 37 at the end of January.
“Very small downsized moves are a symptom of low volatility,” said Trevor Greetham, head of multiasset at U.K. investment firm Royal London Asset management. “Low and falling volatility is a bull market phenomenon. You do get quiet days.”
Expectations that the economy will revive this year have prompted money managers to bet stocks will continue to power higher, driven by sectors such as energy, banks and consumer companies that are sensitive to growth.
U.S. stock futures climbed Monday, suggesting that the major benchmarks will recover some ground following their worst week since October.
S&P 500 futures rose 0.7% and Dow Jones Industrial Average futures strengthened 0.6%. Contracts linked to the tech-heavy Nasdaq-100 index gained 0.7%. Changes in futures don’t necessarily predict moves after the markets open.
Silver futures rose over 11% from Friday’s close, fueled by a wave of fresh enthusiasm from online traders. Silver has rallied in recent trading sessions after users on Reddit’s WallStreetBets forum posted about executing a “short squeeze” similar to ones credited with fueling recent gains in other stocks popular on the internet.
Elsewhere in commodities, international benchmark Brent crude rose 1.1% to $55.63 a barrel. Gold also gained 0.8% to $1,866.00 a troy ounce.
Overseas, the Stoxx Europe 600 climbed 0.9% shortly after the market opened. Industrials and energy sectors led gains while the real-estate sector lost ground. The U.K.’s FTSE 100 gained 0.4%.
The Swiss franc was mostly flat against the U.S. dollar, with one franc buying $1.12. The euro fell 0.1% against the dollar, with 1 euro buying $1.21. The British pound was up 0.1% against the U.S. dollar, with 1 pound buying $1.37.
German 10-year bund yields declined to minus 0.518% from minus 0.515% and the 10-year gilts yield was down to 0.323% from 0.329%. 10-year U.S. Treasury yields rose to 1.082% from 1.064%. Yields move inversely to prices.
Indexes in Asia mostly climbed. Hong Kong’s Hang Seng gained 2.2%, Japan’s Nikkei 225 index advanced 1.6%, and China’s benchmark Shanghai Composite climbed 0.6%.
GameStop and other stocks and assets have been volatile as online investors make big bets on Reddit forums.
Photo:
Andre M. Chang/Zuma Press
—An artificial-intelligence tool was used in creating this article.
U.S. stock futures dropped, putting Wall Street on course to extend losses amid investor concerns about a slowing economic rebound and froth in markets, exemplified by the wild trading in retailer
GameStop.
Futures tied to the S&P 500 fell 0.2% after the benchmark stocks gauge posted its biggest two-day decline since October. Contracts for the Nasdaq-100 declined 0.8%, after earnings from several technology giants including
Apple
underwhelmed investors late Wednesday. Futures tied to the Dow Jones Industrial Average, which has fallen for five-consecutive days in its longest losing streak since February, were roughly flat.
The stumble in stocks follows a strong start to the year that some investors say had pushed share prices beyond levels justified by corporate fundamentals. The selloff has taken place amid wild swings in individual stocks including GameStop and
AMC Entertainment,
fueled by a battle between day traders and hedge-fund professionals.
“There is some over-excitement in the market,” said
Olaf van den Heuvel,
chief investment officer for
Aegon
Asset Management in the Netherlands, pointing to the surge in GameStop shares as one example. “It was bubble territory.”
Individual stocks remained volatile ahead of the bell in New York. GameStop shares jumped 28%, having rocketed 135% Wednesday. AMC clawed back earlier losses to climb 6.1%, extending Wednesday’s gains of more than 300%.
The stumble in stocks has taken place amid wild swings in individual shares, including GameStop and AMC Entertainment.
Photo:
Courtney Crow/Associated Press
The slow vaccine rollout and Covid-19 restrictions in major economies have prompted investors to take some money off the table, Mr. van den Heuvel added. He said Aegon would likely view the selloff as a chance to buy risky assets when markets settle down.
Technology stocks dropped ahead of the bell in New York. Shares of Apple fell 2.9% after the iPhone maker reported its most profitable three months on record but didn’t provide specific revenue guidance for the current quarter.
Tesla dropped 6.1% after the electric-vehicle maker—whose shares have soared in recent months—posted its first full-year profit but missed Wall Street’s expectations.
Facebook,
which posted record net income but warned that uncertainty from regulatory probes and ad-targeting limits could create headwinds, fell 0.8% in premarket trading.
In one sign of rising risk aversion, the yield on the benchmark 10-year U.S. Treasury note dropped below 1% for the first time since Jan. 6, before climbing back to 1.008%, according to
Tradeweb.
Bond yields fall as prices rise. Falling yields are often an indicator that investors see the economic outlook weakening.
The dollar strengthened against various currencies including the Australian dollar and the Korean won. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 0.2%.
Comcast,
American Airlines
and
Mastercard
are scheduled to publish results before markets open. Investors will also parse data on jobless claims—due to be published at 8:30 a.m. ET and expected to show that the number of workers seeking benefits declined last week—for fresh clues about how the economy is weathering the pandemic.
The Federal Reserve maintained its easy money policies Wednesday, saying that business activity has softened with the resurgence of Covid-19 cases.
“Any removal of fiscal stimulus any time soon could lead to a falter in the recovery,” said
Mary Nicola,
a portfolio manager for PineBridge Investments.
The selloff in U.S. stocks extended overseas. The pan-continental Stoxx Europe 600 fell 0.7%, led lower by shares of oil-and-gas and financial companies.
Shares in several heavily-shorted European stocks that shot up Wednesday, when the short squeeze spread beyond the U.S., came under pressure. Commercial real-estate firm
Unibail-Rodamco-Westfield
lost 2.4% and German drugmaker
Evotec
fell 4%.
“It is nerve-racking,” said
Remi Olu-Pitan,
a fund manager at Schroders, referring to the big moves in stock prices fueled by day traders swapping tips online. She said the volatility likely induced some professional investors, including those caught with loss-making short positions, to take money off the table, weighing on broader markets.
“You will see more violent pullbacks,” Ms. Olu-Pitan said. “There are parts of the market that are in a bubble.”
Among other individual movers,
Prudential
dropped 7.5% after the insurer said it was weighing an equity offering and would separate off its Jackson National arm in the U.S. Diageo gained 4.8%, as analysts cheered strong first-half sales in North America by the alcohol producer.
Markets broadly retreated in Asia. Hong Kong’s Hang Seng dropped 2.6%, the Shanghai Composite Index fell 1.9% and Japan’s Nikkei 225 declined 1.5%. Container-shipping giant Cosco Shipping led losses in mainland China, sliding 10%.
In a sign of jitters in Chinese markets, money-market rates continued to rise. The one-week Shanghai interbank offered rate rose 0.012 percentage point to 2.981%, its highest since 2015, according to FactSet.
Short-term borrowing costs have risen in recent days as the People’s Bank of China unexpectedly drained funds from the financial system. Earlier this week, a major business newspaper also published remarks by
Ma Jun,
an adviser to the central bank, who warned of asset bubbles emerging due to loose monetary policy.
Tai Hui,
chief Asia market strategist at J.P. Morgan Asset Management, said new pockets of coronavirus outbreaks in China had also dented investor sentiment.
Write to Joe Wallace at Joe.Wallace@wsj.com and Chong Koh Ping at chong.kohping@wsj.com
Here’s what we’re watching ahead of Wednesday’s opening bell.
—U.S. stock futures slipped, as investors awaited a bumper day of major earnings reports and a meeting of the Federal Reserve.
S&P 500 futures were down 1.1%, while futures tied to the technology-heavy Nasdaq-100 edged down 0.7%. Dow Jones Industrial Average futures fell 1.1%.
What’s Coming Up
—Earnings updates expected:
Tesla,
TSLA -0.71%
Apple
AAPL -0.22%
and
Facebook
FB -2.39%
are due after the close. The electric-car maker is expected to record its first full-year profit.
The Federal Reserve releases a policy statement at 2 p.m. and Chairman Jerome Powell holds a press conference at 2:30 p.m.
Market Movers to Watch
—And then there’s GameStop. Its stock popped again ahead of the bell, soaring 73% in wildly volatile trading. CNBC reported that Melvin Capital, a hedge fund that has posted big losses so far this year in part because of a wager against the videogame retailer’s stock, had closed out its short position on Tuesday afternoon. The report caused a stir on the online platform Reddit—popular among day traders waging a battle against hedge-fund short-sellers—where some members wrote that it was an attempt to pull
GameStop
GME 109.79%
‘s share price back down. And
Elon Musk
weighed in on the stock again last night with a tweet, “Gamestonk!!“
—The show must go on: Another heavily shorted stock, movie-theater operator
AMC Entertainment Holdings,
AMC 133.87%
saw its shares vault more than 350% higher premarket.
—Headphone maker
Koss
KOSS 72.20%
has also joined the party, and its shares jumped 109% premarket.
—
Bed Bath & Beyond
BBBY 28.21%
resumed its upward trajectory, up 20% ahead of the bell. Online traders point to an early 2020 change in management and the fact that the company is buying back shares as signs that the share price will continue to increase.
—
Microsoft
MSFT 1.44%
shares are up 2.1% premarket. The software giant’s profit and sales jumped, propelled by pandemic-fueled demand for videogaming and accelerated adoption of its cloud-computing services.
—
Boeing
BA -4.46%
shares fell 3.3% premarket after the plane maker reported its biggest-ever annual loss and took a huge financial hit on its new 777X jetliner, reflecting the pandemic’s worsening toll.
—
Abbott Laboratories
ABT 1.12%
shares added 1.5% premarket after it logged hearty profit growth in the latest quarter as a surge in demand for its Covid-19 diagnostics services contributed to higher revenue.
—
Starbucks
SBUX -5.30%
slipped 3% premarket after the coffee chain reported that sales fell during the holiday quarter but showed signs of recovery, particularly in China. Its operating chief
Roz Brewer
is leaving to become CEO of
Walgreens
WBA 6.21%
Boots Alliance, where she’ll be the only Black woman leading a Fortune 500 company. Walgreens shares climbed 5%.
A Walgreens store in Tomball, Texas, Jan. 16, 2021.
Photo:
Jeff Lautenberger for The Wall Street Journal
—
AT&T
T -1.11%
shares slipped 1.3% premarket after it reported a fourth-quarter loss as it booked a $15.5 billion charge on its pay-TV business.
—Chip maker
Texas Instruments
TXN -2.81%
‘s shares slipped 1.7% premarket even though quarterly results and outlook both topped Wall Street estimates after Tuesday’s close.
Market Fact
Retail order flows have reached 20% of the U.S. stock market’s total, according to
UBS
research, twice what they were in 2010.
Chart of the Day
GameStop shares have become a favorite of online traders who are seeking to make money from buying options.
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