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Weekly Updates

Communications and Tech Drag on S&P as Energy Gains

Weekly Update – January 15, 2021

  • The S&P 500 index fell 1.5% last week as declines in a number of sectors led by communication services and technology outweighed energy-led gains.
  • The market benchmark ended Friday’s session at 3,768.25, down from last Friday’s record-high closing level of 3,824.68. Still, the S&P 500 remains up for the year and month to date with a gain of 0.3% since Dec. 31 as this week’s decline only erased part of last week’s advance.
  • Communication services had the largest percentage drop of the week, down 3.3%, followed by technology, down 2.6%. Other sectors down by more than 1% included consumer staples, consumer discretionary and materials.
  • However, the overall market drop this week was reduced by a 3.2% jump in the energy sector, a 1.9% rise in real estate and a 1.1% increase in utilities. Financials eked out an increase of 0.06%.
  • The activity came as investors reflected on the turmoil of last week’s riot at the US Capitol and traded cautiously while assessing the fallout, which included an impeachment of US President Donald Trump for inciting the riot. Shares of social media companies were among the week’s hardest-hit stocks after the companies banned Trump from making posts on their platforms.
  • Market participants were also keeping an eye on the rollout of COVID-19 vaccines, which have been moving at a slower pace than expected, at a time when case and hospital counts are still climbing. Economic data continue to show the continued impact of the pandemic, with the latest weekly jobless claims rising by more than economists expected to their highest level in more than four months.
  • The cautious trading this week also came as investors are watching for the pandemic’s impacts on corporate earnings as US companies begin releasing their fourth-quarter results. Friday, big banks JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) all reported year-over-year declines in Q4 revenue at their consumer banks, yet their earnings for the quarter came in above expectations.
  • The decliners in communication services included shares of Twitter (TWTR) and Facebook (FB) after the social media companies suspended Trump’s accounts on their platforms. Shares of Twitter fell 12.2% on the week while Facebook shares dropped 6.1%.
  • In the technology sector, shares of Automatic Data Processing (ADP) fell 5.8% as Evercore ISI downgraded its investment rating on the stock to underperform from outperform while cutting its price target on the shares to $143 from $197. The company provides payroll and other human resource services and thus drops in employment levels tend to weigh on its results.
  • On the upside, the energy sector jumped amid a climb in crude oil futures as the Organization of the Petroleum Exporting Countries left its 2021 demand forecast unchanged. Among the gainers, shares of Occidental Petroleum (OXY) added 11.5% as Barclays raised its price target on the stock to $23 from $18 while keeping its investment rating at equal weight.
  • Next week, the earnings calendar will feature more financial companies including Bank of America (BAC) and Goldman Sachs (GS) Tuesday while other heavyweights reporting will include Alcoa (AA) and Procter & Gamble (PG) Wednesday, and Intel (INTC) and Union Pacific (UNP) Thursday.
  • On the economic calendar, data will be light earlier in the week amid the Martin Luther King Jr. holiday Monday and leading up to the Wednesday inauguration of Joe Biden as the new US president. Weekly jobless claims, housing starts and building permits will be among Thursday’s data, followed by December existing home sales and Markit’s January readings on the manufacturing and services sectors due Friday.

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