S&P 500 falls for the first time this week as US stocks edge lower

Stock trader
Shares of GameStop have staged a gravity-defying rally in recent weeks.

  • US equities fell on Friday after closing at record highs and the S&P 500 fell for the first time this week.
  • GameStop finished a chaotic week in the market after retail investors thwarted short sellers and volatility prompted a trading halt.
  • Watch major indexes update live here.

US equities fell on Friday after closing at record highs as investors weighed the outlook for President Joe Biden’s nearly $2 trillion stimulus bill and grew concerned amid reports that the new coronavirus variant may be deadlier. The S&P 500 fell for the first time this week. 

There is some evidence the new variant of the coronavirus first identified in the UK may be up to 30% more deadly than previous variants, the UK government has said.

A key gauge of US business activity swung higher this month as strong demand lifted manufacturers and service businesses alike. IHS Markit’s composite output index climbed to 58 from 55.3 in an early January reading, hitting its highest level in two months.

Credit- and debit-card spending accelerated through the first two weeks of January as stimulus passed by President Donald Trump bolstered households’ balance sheets. Card spending climbed 6% from the year-ago period over the week that ended January 16, Bank of America said in a Thursday note, citing aggregated card data.

Here’s where US indexes stood at the 4 p.m. ET close on Friday:

Read more: GOLDMAN SACHS: Buy these 26 renewable-energy stocks best-positioned to benefit from increased spending as governments aim for net-zero emissions

GameStop surged as much as 78% on Friday as investors looking to thwart short sellers piled further into the stock and triggered a trading halt.

Shares of GameStop have staged a gravity-defying rally in recent weeks, with shares up as much as 307% year to date based on Friday’s intraday high.

The short seller Andrew Left of Citron Research tweeted that he was ending his bearish commentary on GameStop after he said an “angry mob” of investors harassed him and his family over the past 48 hours.

Canada’s Horizons ETF Management announced Friday that it filed its final prospectus to launch the Horizons Psychedelic Stock Index ETF (PSYK). It will be the first psychedelics ETF and begins trading on the Canadian NEO exchange on Wednesday.

Bitcoin recovered to $33,817 Friday afternoon after tumbling to about $28,000 in the early-morning hours. Comments from Janet Yellen, Biden’s Treasury secretary nominee, and a report of a “double spend” gave bitcoin investors a tumultuous week

Gold fell 0.61% to $1,854.60 per ounce. The dollar weakened against a basket of Group of 20 currencies, and Treasury yields fell slightly.

Oil prices fell but remained above the $50 support level. West Texas Intermediate crude dropped as much as 1.86% to $52.14 per barrel. Brent crude, oil’s international standard, declined 1.52% to $55.25 per barrel.

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Bank of America lifts its forecast for US economic growth on hopes for sweeping Biden-backed stimulus

Joe Biden
President-elect Joe Biden speaks about the US economy following a briefing with economic advisors in Wilmington, Delaware, on November 16, 2020.

  • Bank of America lifted its forecasts for US full-year and first-quarter economic growth, citing hopes for new stimulus under the Biden administration and strong consumer spending trends.
  • The bank’s economists lifted their first-quarter GDP forecast to 4% growth from 1% and boosted their 2021 estimate to 5% from 4.6% expansion.
  • Early indicators suggest the $900 billion relief package signed by President Trump last month is already lifting spending activity, the team said in a note to clients.
  • The $1.9 trillion relief plan revealed by Biden on Thursday can further accelerate a return to pre-pandemic economic strength, they added.
  • Visit Business Insider’s homepage for more stories.

Robust consumer spending and the likelihood of additional stimulus led Bank of America to boost its outlook for US economic growth on Friday.

Economists led by Michelle Meyer expect US gross domestic product to grow 5% through 2021, up from the previous estimate of 4.6%. The bank’s first-quarter GDP forecast was also revised higher, to 4% from 1%.

Early indicators suggest the $900 billion relief package passed by President Trump late last month is already lifting economic activity from its nearly frozen state, the economists said. Debit- and credit-card spending is up nearly 10% from the year-ago period as of January 9, compared to being up just 2% before new stimulus was rolled out.

Additional stimulus from a Biden administration adds to the bank’s bullish forecast. The President-elect revealed a $1.9 trillion relief plan on Thursday, pitching $1,400 direct payments, state and local government aid, and a $15 minimum wage as critical to reviving the virus-slammed economy.

Democrats’ new, albeit slim, majority in the Senate signals a version of the plan will reach Biden’s desk. That extra support stands to provide a major backstop for the economy through the new year, Bank of America said.

Read more: ‘I don’t believe that we’ve really left the recession yet’: Bond king Jeff Gundlach lays out the 2 risks that investors should watch nearly a year into the pandemic – and shares the 4 components of a balanced, winning portfolio

“There are risks in both directions, but we see them skewed to the upside,” the team said in a note to clients. “There is now a ‘fiscal put’ akin to the ‘Fed put.'”

Fresh fiscal relief also takes some pressure off of the Federal Reserve in the near-term, the economists added. Should new stimulus fuel stronger growth and inflation, the Fed could rein in its easy monetary policy stance sooner than initially expected. 

The Biden-backed stimulus also provides the fiscal support Fed policymakers clamored for throughout 2020. If the economy weakens further, the government can coordinate a fiscal- and monetary-policy response akin to that seen at the start of the pandemic, the team said.

Still, elevated COVID-19 cases and strict economic restrictions will delay a full recovery, they added. Bank of America expects GDP will return to pre-pandemic levels in the third quarter.

While front-loaded stimulus boosted the firm’s first-quarter forecast, the early passage of a relief deal cut its second-quarter growth estimate to 5% from 7%.

Read more: Global X’s lithium and battery ETF returned 126% in 2020 as electric vehicle-driven demand surged. One of the firm’s analysts shared 4 stocks he sees ‘leading the rise’ in the industry going forward.

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Stocks are vulnerable to a near-term pullback as the market overestimates a 2021 recovery, CFRA says

NYSE Trader worried red
A trader works on the floor at the New York Stock Exchange (NYSE) in New York, U.S., February 28, 2020.

  • Investors should brace for a near-term pullback in the first quarter of 2021, according to CFRA’s Sam Stovall. 
  • Domestic equity markets appear to us to have over-discounted a second-half 2021 economic and EPS recovery…and as a result may be vulnerable to a Q1 pullback,” the chief investment strategist said in a note to clients on Wednesday.
  • Stovall also sees the S&P 500 reaching 4080 by the end of 2021, a 9.5% upside from current levels.
  • Visit Business Insider’s homepage for more stories.

Investors should brace for a near-term pullback in the first quarter of 2021, according to CFRA’s Sam Stovall. 

Positive vaccine news has left many investors hopeful that the economy will reopen and recover during the summer of 2021. Stovall explained that the market now is showing signs that investors are overestimating a recovery in the economy and earnings in the second half of 2021. 

“Domestic equity markets appear to us to have over-discounted a second-half 2021 economic and EPS recovery…and as a result may be vulnerable to a Q1 pullback,” the chief investment strategist said in a note to clients on Wednesday. 

Read more: JPMorgan unveils its 50 ‘most compelling’ stock picks to buy for 2021 – and details why each one will be a top performer

Stovall noted that the Russell 2000 is currently more than 30% above its 200-day moving average, and the 12-month return differential for the S&P 500 growth-value indices remains at a level not seen since December 1999, shortly before the “Dotcom” bubble burst. 

However, the chief strategist sees the S&P 500 gaining 9.5% in 2021. He reiterated his 12-month price target for the benchmark index of 4080, a sign that 2021 will be a positive year for stocks.

Stovall recommends investors stay overweight consumer discretionary stocks, health care, industrials, and materials. He recommends investors are underweight utilities, real estate, and consumer staples.

Read more: Wall Street’s biggest firms are warning that these 7 things could crash the stock market’s party in 2021

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Value stocks will continue to rally into 2021-but overall S&P 500 returns will be tepid, says BofA

NYSE Trader smile happy
Traders work during the opening bell at the New York Stock Exchange (NYSE) on March 13, 2020 at Wall Street in New York City.

  • A recent rotation into value stocks was just the beginning of a rally that will continue into 2021, said a team of Bank of America analysts led by Savita Subramanian. 
  • But a prospective value stock rally is not necessarily bullish for the broader S&P 500, said the analysts, as the benchmark index is already at extreme levels of valuation and value stocks won’t be able to lift the entire index higher. 
  • “Our value call underpins our tepid outlook for the S&P 500,” said BofA. “But the S&P 500 is very different from the US economy. Here we believe the recovery is intact and recommend value exposure via financials and energy and small over large.”
  • Visit the Business Insider homepage for more stories.

The recent rotation into value stocks was just the beginning of a rally that will continue into 2021, said a team of Bank of America analysts led by Savita Subramanian.

In a Wednesday note to clients, the analysts highlighted that the Russell 1000 Value index has outperformed growth in the last three months, but the bargain-stock rally isn’t over.

“Despite the recent rotation, extreme valuations and entrenched positioning suggest we are in the early innings of a Value cycle. The relative discount for Value stocks remains nearly two standard deviations below average…” said BofA.

The financials sector is BofA’s top pick for value stocks. They also see opportunities in value-oriented cyclical industries like autos and multiline retail. The tech sector fell to the bottom of BofA’s list. 

But any rally in value stocks is not necessarily bullish for the broader S&P 500, said the analysts. In fact,Savita Subramanian sees the S&P 500 finishing 2021 at 3,800-only a 3% gain from current levels.

Read more:Morgan Stanley is warning that the stock market’s economic recovery trade may soon be over. Here are 4 strategies they recommend for finding the returns that still exist.

The analysts explained that the broader market is already richly valued and may not be able to climb much higher.  A value stock rally won’t be able to lift the entire market.

“Our value call underpins our tepid outlook for the S&P 500,” said BofA.” But the S&P 500 is very different from the US economy. Here we believe the recovery is intact and recommend value exposure via financials and energy and small over large.”

The bank remains cautious on stocks in the near-term, as valuations are rich and levels of optimism are at highs not seen since the Great Financial Crisis. The S&P 500 had the best November since 1928, soaring 11%, the analysts said.

“A lot of optimism is baked into stocks, along with rich valuations…and we remain cautious in the near-term. The medium-to-long-term bull case for stocks over bonds remains, although equity returns are likely to be sub-average (~5%),” added BofA.

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Most institutional investors say the market is underestimating COVID-19’s long-term impact on the economy, a Natixis survey finds

A man wears a protective mask as he walks on Wall Street during the coronavirus outbreak in New York
A man wears a protective mask as he walks on Wall Street during the coronavirus outbreak in New York.

  •  A new Natixis Investment Managers survey of  500 institutional investors found that 8 in 10 say the market is underestimating the pandemic’s long-term impact on the economy.
  • The results reveal a stark contrast to calls from more bullish voices, like Wharton’s Jeremy Siegel who says the economy and stock market will be stronger than expected in 2021.  
  • The survey also highlighted the sectors investors anticipate will outperform in 2021, and the areas they’re most concerned about heading into next year.
  • Visit Business Insider’s homepage for more stories.

Eight in 10 institutional investors say the market is underestimating the COVID-19 pandemic’s long-term impact on the economy, and 79% don’t expect a full economic recovery until 2022 or 2023.

That’s according to the recently released Institutional Investor Outlook survey from Natixis Investment Managers. The firm surveyed 500 institutional investors who collectively manage more than $13 trillion in assets in 29 countries. 

The survey results reveal a stark contrast to more bullish calls on the economy, like Wharton’s Jeremy Siegel who says the economy and stock market will be stronger than expected in 2021.  

The S&P 500 continues to break new records, but over three quarters of investors are wary of assuming that run will continue- 78% of institutional investors say current market growth is unsustainable, while 95% see the potential for a market correction in at least one sector. 

Read more:The equities chief at $1.4 trillion Franklin Templeton says stocks are ‘priced for perfection’ – but investors still shouldn’t wait to get in. He tells us 9 ways they can get the market-beating returns.

According to Natixis, investors are most concerned over a correction in real estate, technology, and cryptocurrency. 

However, technology and healthcare are two sectors investors expect to outperform in 2021. 66% expect technology to outperform in 2021, while 65% expect healthcare to exceed expectations. But investors anticipate more beaten-down sectors of the market, like real estate, financials, and industrials to continue to underperform.

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