U.S. stock markets experienced a slight downturn on Friday, bringing an end to a two-week streak of gains, as they moved back from recent record highs. The S&P 500 index decreased by 0.3% a day after it achieved a new all-time high. The Dow Jones Industrial Average fell by 140 points, or approximately 0.3%, while the Nasdaq composite dropped by 0.5%.
The trading landscape remained relatively calm throughout the day, bolstered by stability in the bond market, which has significantly influenced market movements lately. As concerns regarding inflation and rising U.S. government debt have gained traction, Treasury yields have increased, exerting downward pressure on stock prices. Conversely, when those worries lessen—as seen following a recent positive update on inflation—yields tend to decrease, providing a boost to stock values.
The commencement of the earnings reporting season for major U.S. corporations has been predominantly favorable, adding support to the stock market. Although rising Treasury yields have negatively affected stock prices, many companies are countering this trend by posting higher profits. According to Brian Jacobsen, Chief Economist at Annex Wealth Management, “If 2024 is the year of the election, then 2025 will be the year of earnings.” He noted the ongoing improvement in earnings performance but raised questions about the sustainability and potential growth of these profits.
Some corporations faced declines despite strong earnings reports. Texas Instruments saw its shares tumble 7.5%, despite exceeding analysts’ profit expectations. Analysts were focused on discouraging signs regarding the company’s expected profit margins for early 2025, which resulted in a ripple effect that negatively influenced stocks across the semiconductor sector.
CSX, the railroad company, witnessed a 2.9% decline, even though it reported profit figures that aligned with analyst expectations. However, its revenue fell short of projections for the last three months of 2024, partially due to the repercussions of hurricanes.
On a more positive note, Novo Nordisk’s U.S.-listed shares surged by 8.5%, as the Danish pharmaceutical firm announced promising results from a clinical trial for a treatment aimed at addressing overweight and obesity issues, indicating potential for increased profitability in the future. Similarly, NextEra Energy saw a 5.2% rise in its shares after its quarterly profit slightly surpassed analysts’ expectations, attributed to heightened demand for electricity, according to CEO John Ketchum.
Verizon Communications also gained ground, rising 0.9% after reporting quarterly results that exceeded analysts’ forecasts, benefiting from recent price increases and launching initiatives to incorporate artificial intelligence in business solutions.
Overall, the S&P 500 closed down by 17.47 points, resting at 6,101.24. The Dow Jones Industrial Average dropped 140.82 points to end at 44,424.25, while the Nasdaq composite fell by 99.38 points, finishing at 19,954.30.
In the bond market, the yield on the 10-year Treasury note decreased to 4.61% from 4.65% just one day prior. Additionally, other yields declined following several economic reports that were less favorable than anticipated. One report indicated that consumer sentiment in the U.S. was weaker than economists had predicted, falling in January for the first time in six months. Joanne Hsu, director of the Surveys of Consumers at the University of Michigan, noted that the declines affected a wide range of demographics, including various income levels, wealth statuses, and age groups.
Another preliminary report pointed to a slowdown in U.S. business activity, suggesting performance below expectations. However, a third report provided a glimmer of hope, indicating that sales of previously occupied homes slightly exceeded forecasts last month, even as it marked one of the weakest years for home sales since 1995.
Traders do not anticipate that these disappointing figures will prompt the Federal Reserve to lower its main interest rate during their upcoming meeting. Data from CME Group indicates a strong likelihood that the central bank will maintain the current rate, which would mark the first time since it began reducing rates in September to alleviate economic pressures. While lower rates typically stimulate investment prices, they can also exacerbate inflationary concerns. As the specter of persistent inflation looms, anxiety grows regarding the ramifications of potential tariffs and policies promoted by President Trump.
Across global markets, stock indexes presented a mixed performance, with the Tokyo Nikkei 225 index dipping by 0.1% after the Bank of Japan raised its benchmark interest rate to approximately 0.5% from 0.25%, marking the highest point for the rate since 2008 and signaling a shift from a prolonged period of extremely low interest rates aimed at boosting borrowing and spending. In contrast, stocks in Hong Kong rose by 1.9%, while those in Shanghai increased by 0.7%, contributing to notable movement in global markets.
