The S&P 500 returned a stellar 31.5% last year even though earnings likely fell for big companies, and Sonders said investors will need to see profit growth in 2020 to help justify the records that stock prices are setting.
Earnings reports due
Earnings reports will begin in earnest next week, with JPMorgan Chase, Bank of America and other big banks on the schedule to tell investors how much profit they made in the last three months of 2019. Many will also give forecasts for 2020.
Companies across the S&P 500 have been able to squeeze plenty of profit from each $1 in revenue because wages for their workers aren't rising quickly, even when the unemployment rate is at a half-century low.
Average hourly earnings for workers were 2.9% higher in December than a year earlier, Friday’s jobs report showed. That’s the weakest growth since July 2018.
Stubbornly low wage growth isn't good for workers, but it removes a threat of higher inflation that could erode corporate profits and push the Federal Reserve to raise interest rates. Markets see low rates as fuel for markets, and the Fed's three rate cuts last year were a big reason for the surge in stocks.
After the jobs report, the yield on the 10-year Treasury fell to 1.82% from 1.85% late Thursday. Treasury yields fall when their prices rise.
Falling rates can pressure banks by limiting the amount of profit they make on mortgages and other loans, and financial stocks in the S&P 500 alone accounted for about one-third of the index’s loss.
JPMorgan Chase fell 1%, and Bank of America slipped 0.8%.
Six Flags Entertainment plunged 17.8% after the theme park operator warned investors that it may have to nix development plans in China after its partner in the country defaulted on payments. It also said it expects to report a drop in revenue for the latest quarter.
Oil, gas, gold
In commodities trading, benchmark U.S. oil fell 52 cents to settle at $59.04 per barrel. Brent crude, the international standard, fell 39 cents to $64.98 a barrel.
Wholesale gasoline rose 1 cent to $1.66 per gallon. Heating oil fell 2 cents to $1.93 per gallon. Natural gas rose 3 cents to $2.20 per 1,000 cubic feet.
Gold rose $5.80 to $1,557.50 an ounce, silver rose 17 cents to $18.03 per ounce, and copper rose 1 cent to $2.82 per pound.
The dollar rose to 109.54 Japanese yen from 109.52 yen on Monday. The euro rose to $1.1122 from $1.1106.