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Stocks Drop, on Track to End Strong Week on Muted Note

01/22/2021 | 12:46pm EST

By Joe Wallace

U.S. stocks declined Friday, signaling a muted end to a strong week on Wall Street.

The Dow Jones Industrial Average fell 85 points, or 0.3%. The blue-chip average was still on course for modest weekly gains.

The S&P 500 slipped 0.1%, backing away from Thursday's record, and the Nasdaq Composite lost less than 0.1%.

Markets appeared to be pausing after rallying for much of January, with money managers saying there was no clear catalyst for the decline. Investors have been cheered in recent days by a solid start to earnings season, though some are concerned that high valuations in corners of the market will leave stocks vulnerable in the coming months.

"With a lack of new ammunition, people are simply stopping off," said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management.

Investors are cautious of adding new positions ahead of the Federal Reserve's decision on monetary policy and earnings from major companies including Facebook, Apple and Tesla next week, he added.

Shares of International Business Machines fell 10% after the company said it expected to return to revenue growth this year, following a 4.6% decline in 2020

Intel dropped 8.5% after the chip maker posted net income for 2020 of $20.9 billion, down from $21.1 billion a year earlier.

Paint maker PPG Industries said sales volumes fell in the fourth quarter, pushing shares down 2.3%.

Kansas City Southern predicted double-digit revenue growth in 2021, lifting shares in the railroad company by 3.7%.

Earnings have mostly impressed so far this year. Of the 62 companies in the S&P 500 that had reported results by the end of Thursday, 89% have beaten analysts' expectations, according to FactSet.

"So far, so good," said Fredrik Öberg, chief investment officer for private banking at SEB, highlighting results from Netflix, BlackRock and several banks.

Meanwhile, stocks broadly retreated in overseas markets and oil prices dropped amid worries that coronavirus restrictions were crimping demand for crude. Surveys of purchasing managers in Europe showed that high coronavirus rates and government curbs were increasing the risk of the second recession since the pandemic struck.

The pan-European Stoxx Europe 600 index fell 0.6%, led lower by energy companies and travel-and-leisure firms, whose profits are closely tied to the fortunes of the economy. Brent-crude futures, the benchmark in international energy markets, lost 1% to $55.56 a barrel.

Political uncertainty pressured assets in Italy, where the benchmark FTSE MIB index dropped 1.6% after a local newspaper reported that Prime Minister Giuseppe Conte was considering a snap election. Mr. Conte is under pressure to strengthen parliamentary support for his government, a task that appears increasingly difficult, raising the prospect of fresh elections in the spring.

The probability of an election "has likely risen in the past few days, and markets are discounting it," said Francesco Pesole, foreign-exchange strategist at ING Groep.

Among individual European stocks, Siemens rose 7% after the German engineering company said preliminary quarterly results were broadly ahead of market expectations. Volkswagen said deliveries rose in the fourth quarter, boosting shares in the German car maker by 1.9%.

In Asia, Hong Kong's Hang Seng Index ended 1.6% lower after a local newspaper reported that the city would place tens of thousands of people in lockdown to control Covid-19. China's Shanghai Composite fell 0.4%.

Mr. Andersen said he was closely watching outbreaks of coronavirus in China and Hong Kong, after many Asian economies rebounded quickly from the pandemic last year.

"It is of course a risk that this locomotive in Asia could be hurt by this, but we think they have it under control," he said.

Akane Otani contributed to this article

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

01-22-21 1246ET

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -1.75% 31402.01 Delayed Quote.4.43%
HANG SENG 1.41% 30121.83 Real-time Quote.10.62%
NASDAQ 100 -3.56% 12828.310749 Delayed Quote.2.60%
NASDAQ COMP. -3.52% 13119.430702 Delayed Quote.4.48%
S&P 500 -2.45% 3829.34 Delayed Quote.4.51%
STOXX ITALY 20 (EUR) -0.24% 1001.84 Delayed Quote.3.30%
STOXX ITALY 45 (EUR) -0.14% 103.59 Delayed Quote.2.94%
STOXX ITALY TMI (EUR) -0.17% 106.33 Delayed Quote.3.12%
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