US stocks fell on Friday, dragging the Dow Jones Industrials Average for the week as inflation fears overshadowed strong retail sales and better-than-expected earnings reports.
The Dow lost 299.17 points, or 0.86%, to close at 34,687.85. The S&P 500 was down 0.75% to 4,327.16 and the Nasdaq Composite was down 0.8% to 14,427.24.
The three averages closed the week lower for each Snap 3-week winning streak. The Dow ended the week down 0.52%, while the S&P 500 was down 0.97% and the Nasdaq Composite was down 1.87% over the same period.
A US consumer sentiment index from the University of Michigan was 80.8 in the first half of July, down from 85.5 in the previous month and worse than estimates by economists who forecast an increase. The report released on Friday showed that inflation expectations are rising, with consumers believing prices will rise 4.8% over the next year, their highest level since August 2008.
The Dow gave up gains early Friday shortly after the University of Michigan report was released 30 minutes after the session began. Losses increased throughout the day, with major averages closing at session lows.
The weakness in consumer sentiment “is apparently difficult to reconcile with the acceleration in employment growth and the persistent resilience of the stock market,” said Andrew Hunter, senior US economist at Capital Economics now, these positive trends outweigh those positive trends. “
Fears of inflation
The market was held back by fears of inflation all week, although the S&P 500 and Dow briefly hit new all-time highs. On Tuesday, June consumer price index saw a 5.4% yoy increase, the fastest increase in nearly 13 years.
Stocks got off to a good start on Friday, with the Dow rising more than 100 points to over 35,000 shortly after it opened. Data released before the bell showed that retail and hospitality sales rose 0.6% in June, while economists polled by Dow Jones had expected a 0.4% decline. Had that level held it would have been the Dow’s first close above 35,000.
Despite the week’s losses, the Dow is still up 13% for the year, just 1.15% from an all-time high. The S&P 500 is up 15% year over year and is 1.51% below its record high.
“The market strikes me as being fairly valued by and large, with most stocks valued to offer a plus or minus a few percent return on the market,” said Bill Miller, chairman and chief investment officer of Miller Value Partners, in one Investor letter.
“In my opinion, there are bags in the US market that are appreciably overvalued and bags that are significantly undervalued. We can find many names to fill our portfolios and stay fully invested,” added the value investor.
Energy stocks, the hottest part of the market in 2021, fell into correction territory on Friday as oil prices fell from their highs.
The Energy Select Sector SPDR Fund fell more than 2% on Friday, the worst of any group, and lost 14% from its high. Still, the sector grew by around 28% in 2021, making it the top performer of all 11 major industry groups.
The weaker performance of technology stocks also weighed on the market on Friday. Apple shares closed 1.4% lower after hitting a record close just two days earlier. Netflix shares fell ahead of the streaming giant’s earnings report for the second quarter next week.
Investors digested strong earnings results from the first big week of the second quarter reports. Although some of the country’s largest companies posted healthy profits and revenues amid the economic recovery, the stock market response has so far been muted.
The Financial Select Sector SPDR Fund ended the week down 1.5% despite strong earnings growth numbers from JPMorgan Chase and Bank of America.
“Good profits may have become an excuse to take profit for some investors. And with earnings expectations so high across the board, it takes a really big blow to impress, ”said JJ Kinahan, TD Ameritrade’s chief market strategist.
– CNBC’s Maggie Fitzgerald and Michael Bloom contributed to the coverage.
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