The S&P 500 fell slightly on Friday, retreating from record levels, while the strength in major technology names pushed the Nasdaq composite to another all-time high.
The broad equity benchmark dipped 0.2% after closing at a record in the previous session. The Nasdaq rose 0.2% to an new intraday record, supported by gains in Microsoft and Facebook. The Dow Jones Industrial Average dipped 90 points, or 0.3%, after dropping as much as 267 points earlier in the day.
Dow-component IBM fell more than 9% after the company reported fourth-quarter sales below analysts' expectations. Revenue fell 6% on an annualized basis, the fourth consecutive quarter of declines. Intel shares retreated 7% following a 6% pop on Thursday after it released better-than-expected earnings.
Hopes for a robust earnings season from the country's largest communications and tech companies have kept the mega-cap stocks trending upward, and the major indexes near records, during the holiday-shortened week.
Microsoft rose another 2% Friday, bringing its weekly gain to 8%. Facebook and Apple have rallied 15.5% and 8.1%, respectively, this week and they traded in the green again Friday. These big tech companies are scheduled to report earnings next week.
"Unlike earlier this month, this week's rally has been led by growth stocks and mega-cap tech names," Mark Haefele, chief investment officer at UBS, said in a note. Netflix's "strong results and plans to return cash to shareholders supported a rally in the other FAAMNGs ahead of their forthcoming earnings releases."
Despite Friday's weakness, the major averages are on pace to post a winning week. The S&P 500 is up 2.2% for the week so far. The Dow is up 0.6% and the Nasdaq Composite is up 3.8%.
Investors reassessed the outlook for President Joe Biden's ambitious Covid stimulus plan. A growing number of Republicans have expressed doubts over the need for another stimulus bill, especially one with a price tag of $1.9 trillion proposed by Biden. Meanwhile, Democratic Sen. Joe Manchin has criticized the size of the latest round of proposed stimulus checks. Dissent from either party carries weight for Biden, who took office with a slim majority in Congress.
"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.
Cyclical sectors, or those that would benefit most from additional stimulus, have been lagging the broader market this week. Energy and financials have both lost more than 1% week to date, while materials are also down. These sectors drove the market declines once again on Friday.
Meanwhile, tech companies, whose revenue growth is less dependent on fiscal stimulus, have led the charge.
With the S&P 500 up another 2% this year and up 16% over the last 12 months, some investors believe the market may be getting ahead of itself as hiccups with the vaccine rollout and economic reopening remain likely going forward.
"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.
Meanwhile, a Senate committee on Friday overwhelmingly supported former Fed Chair Janet Yellen as Biden's Treasury secretary. If confirmed, she would be the first woman to lead the department.