Stocks declined Friday and for the week. It was a busy week of economic data and the start of earnings season, which was marked by an bank earnings that sent mixed signals.
Despite a sour Friday for major banks, the financial sector, which gave back 1.51% today, managed to rise the second most this week, up 1.31%, trailing only Energy sector, which rose 4.2%.
Banks rallied ahead of Friday following increased speculation for a March rate hike, that could be the first of several hikes in 2022. This would, of course, be bullish for banks looking towards the rest of the year as a higher rates mean more profit for lenders.
Bank Earnings
As noted earlier, earnings season kicked off on a disappointing note with disappointing reports from some major banks.With the exception of Citigroup (C), all banks beat earnings estimates. Meanwhile, JPMorgan (JPM) and asset-manager BlackRock (BLK) missed on revenues.
Wells Fargo (WFC) had the standout report, showing 12.8% year-over-year revenue growth and EPS of $1.38 per share. Wells Fargo was the lone advancer, rising more than 3% Friday as the company’s report earned its stock several price target increases.
Card volume showed a quarter-on-quarter recovery at JPMorgan, Citigroup, and Well’s Fargo. However, according to Wedbush analyst Moshe Katri, when adjusted for inflation, card spending growth remains “anemic” when adjusted for inflation. This may be a sign of spending normalizing after several quarters that were boosted by favorable comparisons and stimulus checks.
Economic Data
Speaking of anemic spending, December Retail Sales data came in worse-than-expected. The headline figure showed a decline of 1.9% in spending and was a decline of 2.3% when excluding auto spending. Additionally, the November figure was revised down to a 0.2% increase from a 0.3% rise.This means 2021 finished up 14.4% from 2020, which was carried by two of the hardest-hit industries in 2020. Gasoline stations saw a massive 41% increase in spending over the year and food services and drinking places saw a 41.3% rise.
Meanwhile, Nonstore Retailers (which is mostly Amazon) had the sharpest decline in December, falling 8.7% month-over-month. This was the second consecutive monthly drop for online shopping as consumers get back to the stores. This is more bad news for the group stocks in that industry group falling 6.72% as a whole during that timeframe.
The decline in dollars spent may be even worse than the headline shows after the Consumer Price Index was revealed to have risen more than expected in December. Of course, this could also be a sign that consumers are willing to wait on some purchases until prices go back down, which would be a good sign for those worried about inflation.
Nor was it overly surprising considering the Consumer Sentiment report the University of Michigan published shortly after the Retail Sales figures were released. Consumer sentiment fell 2.5% to a reading of 68.8 as it reached its second-lowest level in a decade. The report noted Omicron and Delta variants as well as inflation as contributors to the decline.
Sentiment was particularly bleak-looking forward as the expectations index fell 3.5% month over month to 65.9. Households earning less than $100,000/year dominated the negative outlook with a decline of 9.4%, while those earning more than the six-figure threshold got 5.7% more optimistic. The main contributor to this erosion, according to the University of Michigan, was inflationary erosion of earnings, which was twice as prevalent in households in the bottom third of wages compared to the top third of wages.
With expectations worsening as inflation chips away at people’s earnings, it's no wonder spending would drop.
Anyways, all told stocks fell this week. The S&P 500 fell 0.16%, while the Dow lost 0.44%. Meanwhile, the Nasdaq rose 0.33% and the Russell 2000 advanced against the market, rising 1.11% on the week.