Wall Street ended the day on Friday slightly in the red, thereby breaking a five-session rally, as energy shares declined and Wall Street looked ahead to earnings season, which kicks off next week with Citigroup, JPMorgan and other large banks.
Underpinned by optimism over China-U.S. trade talks and expectations of a slow pace of interest rate hikes from the Federal Reserve, the stock market’s winning streak through Thursday added 6 percent to the S&P 500 and left it up about 10 percent from the 20-month low it hit around Christmas.
The S&P 500 on Friday ended the day down just 0.01 percent after recovering from a loss of 0.74 percent earlier in the session.
The S&P energy index was off 0.63 percent, leading declines among 11 sectors, as oil prices fell after nine days of gains.
The financial index rose 0.17 percent. Citigroup, which will report earnings on Monday, rose 0.44 percent after agreeing to give shareholder ValueAct Capital more access to its books and board of directors.
JPMorgan, which reports on Tuesday, was down 0.48 percent. Some bargain hunters are betting on a stronger 2019 for banks after the S&P 500 bank index fell 18.4 percent in 2018.
The major equity markets took a severe beating in the last quarter of 2018 due to worries over trade, interest rate hikes and a slowdown in global growth.
Analysts expect S&P 500 companies’ earnings per share to grow by 6.4 percent this year, compared with 23.5 percent in 2018, when they were supercharged by newly enacted corporate tax cuts, according to IBES data from Refinitiv.
General Motors announced strong earnings forecast for 2019, sending the automaker’s shares rising 7.05 percent.
For the week, the S&P 500 rose 2.5 percent, the Dow added 2.4 percent and the Nasdaq picked up 3.4 percent.
Netflix rose 3.98 percent, bringing its gain in 2019 to 26 percent, helped by analysts’ optimistic forecasts for subscriber growth ahead of its earnings next week.
Activision Blizzard fell 9.37 percent, the most on the S&P 500, after it transferred publishing rights for its “Destiny” video game franchise to Bungie.
Approximately 6.8 billion shares changed hands on the major domestic equity exchanges, as compared to the 8.9 billion share average over the past 20 trading days.
Consumer Prices Fall
Consumer prices fell for the first time in nine months during December amid a decline in gasoline prices, but underlying inflation pressures remained firm as rental housing and healthcare costs rose steadily.
According to a report released by the Labor Department on Friday, the Consumer Price Index fell 0.1 percent last month, the first decline and weakest reading since March. The CPI was unchanged in November. In the 12 months through December, the CPI rose 1.9 percent after increasing 2.2 percent in November.
However, if you exclude the volatile food and energy components, the so-called core CPI increased 0.2 percent, advancing by the same margin for a third straight month. In the 12 months through December, the core CPI rose 2.2 percent, matching November’s increase.
December’s inflation readings were in line with expectations. The CPI rose 1.9 percent in 2018, slowing from a 2.1 percent increase in 2017. The core CPI increased 2.2 percent in 2018, up from 1.8 percent in 2017.
The Fed, which has a 2 percent inflation target, tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy. The core PCE price index increased 1.9 percent year-on-year in November after rising 1.8 percent in October. It hit 2 percent in March for the first time since April 2012.
A sharp decline in oil prices amid an oversupply and slowing global economic growth is keeping overall inflation in check. Lower oil prices are also filtering through to core inflation via cheaper airline tickets.
The Fed has forecast two rate hikes this year, but several policymakers, including Chairman Jerome Powell, have said they would be cautious about raising interest rates.
Powell reiterated that view on Thursday, saying “especially with inflation low and under control we have the ability to be patient and watch patiently and carefully” while the central bank monitored economic data and financial markets for risks to growth.
Minutes of the U.S. central bank’s Dec. 18-19 policy meeting published on Wednesday showed “many” officials were of the view that the Fed “could afford to be patient about further policy firming.”
Low inflation is raising households’ purchasing power, which could keep consumer spending supported.
Inflation-adjusted average weekly earnings surged 0.7 percent in December, the largest gain since August 2015, after falling 0.1 percent in November. Weekly earnings increased 1.2 percent in the 12 months to December, the most since July 2016, from 0.6 percent in November.
Last month, gasoline prices fell 7.5 percent, the largest decrease since February 2016, after falling 4.2 percent in November. Food prices increased 0.4 percent. That was the largest gain since May 2014 and followed a 0.2 percent increase in November. Food consumed at home increased 0.3 percent in December after rising 0.2 percent in the prior month.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, advanced 0.2 percent in December after rising 0.3 percent in November.
Healthcare costs increased 0.3 percent last month after jumping 0.4 percent in November. The cost of hospital services were up 0.5 percent, but prices for prescription medication fell 0.4 percent and the cost of doctor visits was unchanged.
Apparel prices were unchanged in December after dropping 0.9 percent in the prior month. Airline fares tumbled 1.5 percent and prices for used motor vehicles and trucks fell 0.2 percent after rising for two straight months.
However, prices for household furnishings increased, likely because of tariffs imposed by the Trump administration on a range of imported Chinese goods. New motor vehicle prices were unchanged for a second straight month.