Dow Closes Lower as Bank Stocks Fall

The winter stock market sell-off deepened this week, pushing the three major indices into the red for 2022.

The S&P 500 and Dow Jones industrial indexes have fallen for the second week in a row, while the Nasdaq Composite has fallen in the past three weeks. Investors continued to sell bonds, pushing the yield on the benchmark 10-year US Treasury bond higher for the fourth consecutive week, posting its biggest gain during that period since mid-March.

Investors were still assessing interest rate expectations and how quickly the Federal Reserve would move to tame inflation, disrupting the stock and bond markets. Meanwhile, a spike in Covid-19 cases has weighed on sentiment, although there are signs that infections may be nearing a peak.

The week started on choppy grounds, with stocks broadly lower and the Nasdaq close to a correction before closing slightly higher. On Tuesday, Federal Reserve Chairman Jerome Powell reiterated the central bank’s view that inflation is likely to peak by mid-year, while also noting that interest rates will remain low. This helped halt a series of declines for the S&P 500 and Dow industrials index.

Stocks, especially hard-hit sectors like technology, appear to be regaining some of their gains. But new pricing data released on Wednesday and Thursday showed inflation remained hot last month, complicating expectations. Stocks fell on Thursday, led by a 2.5% drop in the Nasdaq.

Weak earnings from some major US banks, along with weak retail and manufacturing data, pushed most of the market lower again on Friday until a rush of buying late in the session pushed the S&P 500 and Nasdaq into positive territory. The Standard & Poor’s 500 added 3.82 points, or less than 0.1%, to 4,662.85, and the Nasdaq 86.94 points, or 0.6%, to 14,893.75. The Dow Jones Industrial Average fell 201.81 points, or 0.6%, to 3,591.81 points.

“We expect a more volatile environment, with big bull days and big crash days. It will be a bumpy ride,” said David Donabedian, chief investment officer at CIBC Private Wealth US. “It will be a bumpy ride.”

A turnaround late on Friday wasn’t enough to avert another week of stagnation. The S&P 500 and Nasdaq are down 0.3% over the past five trading days, while the Dow is down 0.9%. Markets are closed on Monday for Martin Luther King Jr. Day, reducing the trading schedule next week.

The US dollar last year saw the biggest increase in its value since 2015. This is good for many US consumers, but it could also affect stocks and the US economy. WSJ’s Dion Rabouin explains. Image caption: Sebastian Vega/The Wall Street Journal

On Friday, the first dose of fourth-quarter corporate earnings reports gave investors a sobering view of corporate growth this year. Quarterly earnings fell by double digits at JPMorgan Chase and CitigroupAnd

Ending a streak of big gains for most of 2021.

Shares of JPMorgan Chase fell $10.34, or 6.1%, to $157.89, and Citigroup shares fell 85 cents, or 1.3%, to $66.93. Wells Fargo bucked the trend, adding $2.06, or 3.7%, to $58.06, after the bank reported that earnings rose 86% in the final three months of 2021.

BlackRock posted higher quarterly earnings, and market gains pushed the investment firm’s assets under management to more than $10 trillion. Despite this, its shares fell $18.98, or 2.2%, to $848.60.

However, analysts remain optimistic about corporate earnings, forecasting growth across the S&P 500. Mark Heffel, chief investment officer at UBS Global Wealth Management, said he expects another positive quarter, with earnings growth of 30% year-over-year.

Manufacturers, materials companies and consumer discretionary stocks also declined after the economic data. Besides, Sherwin-Williams stock fell $8.93, or 2.8%, to $308.46 after the paint maker cut its guidance, citing a shortage of raw materials amid supply chain and labor restrictions.

Higher returns have prompted investors to exit technology stocks.


Photo:

Courtney Crowe/The Associated Press

Some high-growth stock buying gave the market, and the Nasdaq, some support, as investors returned to trade that tends to do well during periods of economic uncertainty. Facebook’s Original Met PlatformsAnd

MicrosoftAnd

Tesla and Netflix each gained more than 1%.

Energy stocks jumped 2.4%, boosted by higher oil prices.

Casino stocks including Las Vegas Sands and Wynn Resorts jumped after Macau passed a bill that would cut the term of new casino licenses in half, but would not reduce the number of licenses. Las Vegas Sands added $5.33, or 14%, to $42.99, and Wynn Resorts gained $7.24, or 8.6%, to $91.47.

Meanwhile, bond yields resumed their rally. Expectations of higher interest rates as soon as March caused some investors to sell government bonds, driving up yields. The yield on the benchmark 10-year Treasury rose to 1.771% on Friday from 1.708% on Thursday.

“Stock markets will continue to take their cues from the bond market,” said Hugh Jimber, strategist at JPMorgan Asset Management. “What is becoming clear is that the Federal Reserve recognizes that inflationary pressures are greater and more extensive than they previously expected.”

Cryptocurrency dogecoin jumped 12% from the ET level at 5 pm on Thursday after Elon Musk said that Tesla was accepting payment for some goods with currency, which was originally started as a joke. The price of Bitcoin recently fell by less than 1%.

Offshore, the Stoxx Europe 600 Continental Index is down 1%.

South Korea’s central bank raised interest rates to pre-pandemic levels to fight inflation, and indicated more increases could come this year. The country’s benchmark Kospi was down 1.4%. Other major Asian stock indices also closed lower. China’s Shanghai Composite Index is down 1%, and Japan’s Nikkei 225 Index is down 1.3%.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Michael Wursthorn at michael.wursthorn@wsj.com

Corrections and amplifications
Over the course of the week, the Dow Jones Industrial Average is down 0.9%, and the Nasdaq Composite is down 0.3%. An earlier version of this article incorrectly stated that it was the Dow that fell 0.3% and the Nasdaq that fell 0.9%. (corrected January 14th)

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