US close: Stocks snap winning streak, but hold onto gains

US stocks snapped a five day winning streak on Friday as investors paused for breath following a roughly 10% rally from the lows hit on Christmas eve, as investors wondered aloud regarding the staying power of recent gains.

Market participants were also keeping a nervous eye on the news-flow surrounding the partial shutdown of the US federal government, amid speculation that President Donald Trump might opt to invoke a 'national emergency' in order to break the impasse.

Against that backdrop, the Department of Labor reported a drop in the year-on-year rate of increase in headline US consumer prices from 2.2% in November to 1.9% for December, alongside a 'solid' reading on core CPI which remained at 2.2%.

Nevertheless, by the end of the session the main US market gauges had recouped almost all their losses from earlier in the session, with the Dow Jones Industrial just 0.02% lower at 23,995.95, while the S&P 500 dipped 0.01% to 2,596.26 and the Nasdaq Composite was 0.21% softer at 6,971.48.

In parallel, the yield on the benchmark 10-year US Tresury note fell by four basis points to 2.70% and that on the two-year note by three basis points to 2.54%.

Commenting on the latest US CPI figures, Mickey Levy at Berenberg Capital Markets said: "CPI inflation tends to run a few-tenths of a percentage point above the Fed’s preferred measure of inflation, PCE inflation, and suggests it is likely to remain under 2%.

"Based on the December CPI, the headline PCE price index (set for release on January 31) was likely unchanged, lowering its yr/yr change to 1.7% (from 1.8%) and the core PCE price index probably increased 0.2% m/m, keeping its yr/yr change at 1.9%."

Levy added: "energy and other commodity prices remain low and the stronger U.S. dollar has lowered prices of nonpetroleum imports, offsetting the upward pressure on consumer prices from solid domestic demand and tariffs. Measures of inflation expectations remain relatively low. Inflation pressures in the U.S. are well contained."

As an aside, overnight US Treasury Secretary Steve Mnuchin said that China’s lead trade official, Vice Premier Liu He, would "most likely" head over to the US for further trade talks later this month.

"The current intent is that the Vice Premier Liu He will most likely come and visit us later in the month and I would expect the government shutdown would have no impact," Mnuchin told reporters on Thursday.

"We will continue with those meetings just as we sent a delegation to China."

"That comment appears to have renewed hopes that the recent get-together in Beijing, though not producing any concrete progress just yet, was nevertheless a step towards an eventual trade war resolution," said Spreadex analyst Connor Campbell.

Also on Thursday, Federal Reserve chairman Jerome Powell said at the economic Club of Washington that the Fed was ready to wait before hiking rates again. Powell also said that the US central bank's balance sheet will be "substantially smaller" than it is now, "but nowhere near where it was before".

Russ Mould, investment director at AJ Bell, said: "Although financial markets are breathing a sigh of relief that the US Federal Reserve now seems less aggressive on interest rates, after nine increases since late 2015, they may be less pleased with chair Jay Powell’s comments in Washington yesterday that it is still the plan to make the central bank’s balance sheet ‘substantially smaller’ over time.

"This means that the Fed will continue to tighten monetary policy and drain away some of the cheap money which, it could be argued, has done so much to fuel prices across shares, bonds and a range of other asset classes over the last decade."

In corporate news, Activision Blizzard was down 9.37% in early trade after the video game company announced late on Thursday that it was transferring publishing rights for its Destiny franchise to Bungie. This will mean that Activision will not include revenue or operating income from the franchise this year.

Elsewhere, American Airlines flew 0.75% lower after it downgraded its profit estimate for 2018 on Thursday and cautioned that it will struggle to increase revenues towards the end of the year.

Apple slipped 0.98% after the Wall Street Journal said it was planning three new iPhone models this year, including a device to succeed the newly-created XR model.

Dow Jones - Risers

Verizon Communications Inc. (VZ) $58.02 1.70%
Unitedhealth Group Inc. (UNH) $247.67 1.65%
Coca-Cola Co. (KO) $47.34 1.65%
Travelers Company Inc. (TRV) $120.47 1.51%
McDonald's Corp. (MCD) $182.37 1.15%
Procter & Gamble Co. (PG) $91.77 0.90%
Intel Corp. (INTC) $48.93 0.76%
Johnson & Johnson (JNJ) $129.75 0.64%
Cisco Systems Inc. (CSCO) $43.49 0.58%
United Technologies Corp. (UTX) $109.95 0.58%