Stock ETFs Slip on Dampened Stimulus Outlook | ETF Trends

Stocks and index ETFs recoiled from recent record highs on Friday, as investors contemplated the likelihood of President Biden’s coronavirus stimulus plan.

The Dow Jones Industrial average continued its fall from the overnight futures session, slipping 100 points, or 0.3%, after dropping nearly 300 points earlier in the session, while the S&P 500 dipped 0.3%. The tech-heavy Nasdaq Composite declined 0.2%. Both the Nasdaq and the S&P 500 notched record closing levels on Thursday.

Major stock ETFs are slipping on Friday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all lower just after noon EST.

While big tech stocks are largely positive on Friday, heavy-hitter IBM sank over 9% after the company reported fourth-quarter sales below analyst expectations. Revenue for IBM dropped 6% on a year-over-year basis, making it the fourth consecutive quarter of declines. The move drove the First Trust NASDAQ Technology Dividend Index Fund (TDIV), which counts IBM among its larger holdings, more than 2% lower.

Optimism over strong projected corporate earnings performances in tech next week is helping to buoy Nasdaq, with Microsoft adding another 2% Friday for a weekly gain of 8%. Facebook and Apple advanced an impressive 15.5% and 8.1%, respectively, this week.

Biden Stimulus Plan Facing Greater Uncertainty

Meanwhile, lawmakers are expressing considerable doubt about the efficacy and feasibility of Biden’s proposed stimulus plan.

“The political reality of Washington is starting to impact markets, and it’s becoming more unclear when Democrats’ ambitious stimulus goals will become law,” said Tom Essaye, founder of Sevens Report.

As a result of the concerns, cyclical sectors, which stand to gain the most from additional stimulus, have been flagging the broader market this week, with energy falling slightly along with financials on Friday. Tech is largely unaffected by stimulus, and thus is holding up better.

Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, returned to the daily White House briefing on Thursday to note how new data reveals that vaccines currently on the market may be less effective against the different strains of the coronavirus.

“The Covid pendulum, which normally emphasizes vaccine optimism over the harsh near-term reality, is swinging back towards the latter (for now) as epicenter stocks get hit hard in Europe,” Adam Crisafulli, founder of Vital Knowledge, said in a note Friday.

“Without some sort of catalyst to push things higher, I think the gravitational pull is probably flat to somewhat lower just given where valuations are and the fact that there’s been a lot of force driving the market up since November, and that’s probably beginning to wane a little bit,” said Keith Hembre, chief investment officer for Minneapolis-based Liniam Capital.

Despite Friday’s slippage, benchmark stock indexes and ETFs are targeting a winning week, with the S&P 500 having advanced 2.2% for the week thus far and the Nasdaq Composite adding 3.8%.

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