Preface

On Friday, U.S. stocks ended nearly unchanged in a turbulent trading session just before the long weekend. This week, all three prominent indexes recorded losses coinciding with the commencement of the fourth-quarter earnings period. With the S&P 500 sectors, healthcare saw a decline of 0.8%, dominating the day's decreases. Semiconductor stocks recorded an increase as their index rose by 1.2%, maintaining their upward trajectory from Thursday.

Lazy bag

The earnings season began amidst a choppy market, with healthcare dropping but semiconductors rising. Investors displayed caution prior to the lengthy weekend.

Main Body

This week, several large U.S. banks reported mostly satisfactory earnings as the S&P 500 reporting season commenced. Still, shares in banking and other financial sectors have felt the strain due to concerns over President Donald Trump's plan to impose a one-year cap of 10% on credit card interest rates. By Friday, the financial sector of the S&P 500 rose 0.1%, but it still registered its largest weekly percentage dip since October. Investors digested the possibility of Trump retaining Kevin Hassett in his economic advisory role, which reduced market assumptions that Hassett might replace Federal Reserve Chair Jerome Powell.

Anthony Saglimbene, Ameriprise Financial’s chief market strategist, stated, “To close out the week nearly flat, with the S&P 500 still close to 7,000, is something most investors will consider successful just two weeks into the year.” He also noted that the emerging earnings season is another reason for the market's stagnation, as “Bank earnings reflect a generally positive economic and business environment, and as other sectors' companies begin reporting, they provide greater insights into fundamental conditions.” On Friday, the Dow Jones Industrial Average decreased by 83.11 points, or 0.17%, to 49,359.33, while the S&P 500 and Nasdaq Composite fell by 4.46 points, or 0.06%, to 6,940.01 and by 14.63 points, or 0.06%, to 23,515.39, respectively. Throughout the week, the S&P 500 fell by 0.38%, the Nasdaq dropped by 0.66%, and the Dow went down by 0.29%.

Next week signifies a critical period for earnings with reports due from key names such as Netflix, Johnson & Johnson, and Intel. Investors have maintained caution, refraining from heavy wagers ahead of the long weekend due to the stock market closure on Monday in observation of Martin Luther King Jr. Day. Despite recent sessions being largely confined within a narrow trading range, some options market players foresee increased market volatility following the month’s options expiration on Friday.

B. Zaro, Granite Wealth Management’s managing director in Plymouth, Massachusetts, remarked, “Historically, January’s midsection leans towards volatility, and as we move past that phase, we might witness improved performance by month's end. Ideally, the month will conclude positively, indicating favorable outcomes for the year.”

This week also heralded a shift of capital away from major tech stocks to more undervalued areas, leading to mid- and small-cap stocks outperforming the S&P 500 benchmark. Setting a new benchmark, the Russell 2000 Index (.RUT) reached another record high on Friday, gaining 2.04% over the week. Most significant S&P 500 sectors closed with weekly surges, with real estate, consumer staples, and industrials recording substantial gains.

On the NYSE, declining stocks surpassed advancing issues by a 1.19-to-1 ratio, with 423 new highs and 64 new lows. Similarly, on the Nasdaq, advancing issues were overshadowed by declining stocks at a 1.34-to-1 ratio, with 2,034 stocks rising against 2,719 falling. The trading volume on U.S. exchanges stood at 18.77 billion shares, surpassing the 16.85 billion average from the past 20 trading days.

Key Insights Table