US stocks fell for the second consecutive day on Friday as oil prices dropped in a gloomy end to the week after disappointing US retail sales data underscored the severe strains faced by the world’s biggest economy.
The benchmark S&P 500 index closed 0.7 per cent lower, while the tech-heavy Nasdaq Composite was down 0.9 per cent.
The wobble in market sentiment came after a round of data released by the US commerce department on Friday showed that retail sales dropped 0.7 per cent in December from November. Economists had expected no change.
“The retail sales report indicates lower consumption growth in the fourth quarter than we had previously assumed,” said Jan Hatzius, chief economist at Goldman Sachs, who added the data were “well below consensus expectations”.
Retail sales are closely watched in the US since consumer spending makes up about two-thirds of the country’s economic output.
Oil prices were under pressure on both sides of the Atlantic while investors shifted into perceived havens such as government debt and the dollar.
Brent crude, the international standard, was down 2.7 per cent at $54.90 a barrel. The US benchmark West Texas Intermediate decreased by about the same margin to $52.17 a barrel.
Shares in ExxonMobil slid more than 5 per cent by the closing bell after a report that regulators launched an investigation into a whistleblower accusation that the US oil group had overvalued one of its largest assets.
Shares in Halliburton and EOG Resources also dropped by roughly 5 per cent.
“It’s rare that commodities can have a sustainable advance,” said Jurrien Timmer, director of global macro at Fidelity, adding that the oil sector moves were “a minor rotation on the back of a rising dollar . . . I wouldn’t read much more into it than that”.
The dollar rose 0.6 per cent against a basket of half a dozen developed market currencies. Meanwhile, the yield on 10-year US government debt slipped 0.32 percentage points to 1.09 per cent.
Despite today’s setback, oil has “basically tracked the market since early November and the vaccine news”, said Russ Koesterich, portfolio manager of the BlackRock global allocation fund. “As investors have become more optimistic about a vaccine, they’ve become more optimistic about the economy, mobility and cyclical assets such as oil.”
Bank shares also took a hit on Friday, denting a recent rally, as three of America’s biggest lenders reported their quarterly results. JPMorgan Chase, Citigroup and Wells Fargo released a total of more than $5bn of pandemic-era loan loss reserves, in a sign of their optimism that defaults will be lower than previously feared.
But Jamie Dimon, JPMorgan’s chief executive, highlighted the risks to the world economy posed by coronavirus, noting that “our credit reserves of over $30bn continue to reflect significant near-term economic uncertainty”.
Wells Fargo, which tends to be more sensitive to the domestic economy than its big bank rivals, which have larger Wall Street businesses, was the steepest faller in New York on Friday, sliding 7 per cent.
The downbeat economic data also came as investors examined the early detail of Joe Biden’s economic rescue plan, in which the US president-elect pledged an additional $1.9tn in fiscal stimulus.
Mr Biden’s package, which includes further direct payments to Americans and money for local governments, is intended to help resuscitate a struggling US recovery from the pandemic. It follows $900bn of aid agreed by lawmakers last month.
The second stage of Mr Biden’s economic plan, set to be announced next month, is expected to include longer-term spending plans in areas such as infrastructure. In a speech on Thursday, Mr Biden outlined his incoming administration’s response to the coronavirus pandemic and called on wealthy individuals and corporations to pay their “fair share”.
“The bit that’s really taken the market by surprise is the taxation that was mentioned,” said Justin Onuekwusi, fund manager at Legal & General Investment Management. “The market always believed that a tax rise would come, but we didn’t expect to hear about it so early.”
In Europe, the continent-wide Stoxx 600 and London’s FTSE 100 both closed down 1 per cent, while Frankfurt’s Xetra Dax fell 1.4 per cent.
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