Daily Market Color

Equities Decline as Retail Sales Fall for Third Straight Month

Equities decline as markets begin to question whether Congress will pass President-elect Biden’s stimulus proposal
The $1.9 trillion American Rescue Plan includes additional funding for more direct payments, unemployment benefits, and vaccine distribution.  The size of the package has come under scrutiny from Republicans who continue to favor a smaller package, leaving markets to question whether the package will gain Congressional approval.  The uncertainty pulled major equity indices lower – the S&P 500 and DJIA fell 0.7% and 0.6%, respectively.  Treasury yields and swap rates closed lower across the curve – the 10-year UST yield closed 3 bps lower at 1.09%.
Retail sales declined 0.7% in December after dropping 1.4% in November
During the holiday season, increased COVID-19 restrictions depressed spending at restaurants and clothing retailers.  The figure declined for the third month in a row and missed economist expectations (forecasted 0.1% decline). Despite the consecutive monthly declines, total sales for 2020 were up 0.6% from 2019.
December PPI rises 0.3% in December from 0.1% the month before
The monthly gain was mainly driven by an increase in energy, but price pressures overall remained suppressed. Headline PPI for 2020 came in at 0.8% while core PPI (excluding food/energy) was up 1.2%.
Industrial production and manufacturing grew 1.6% and 0.9% in December
Factory production has now risen for eight consecutive months, supported by the general shift in demand from services to goods.  While manufacturing production increased by an annualized 11.2% in Q4, the industry continues to face challenges like labor constraints and increasing virus cases, which could limit growth in the future.
Bank earnings season kicks off with JP Morgan, Citigroup, and Wells Fargo reporting today
JP Morgan’s Q4 earnings beat revenue and profit expectations, as the bank revealed a 42% growth in net income.  Much of the growth was driven by releasing funds previously allocated for expected loan losses. Citigroup’s revenue also beat expectations, but the bank revealed a 7% decline in earnings.  Wells Fargo grew its Q4 profit by 5%, but reported a 10% decline in revenue.
Markets will be closed on Monday in observance of Martin Luther King day

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