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Stocks erase weekly gains

U.S. equities fell along with global stocks on Friday, rounding out a week of choppy trading.

The S&P 500 (^GSPC) slipped 1.91%, or 50.59 points, as of market close, dipping just below 2,600 points. The Dow (^DJI) slid 2.02%, or 496.87 points to its lowest close since May, with declines in shares of Johnson & Johnson and Apple weighing on the index. The Nasdaq (^IXIC) fell 2.26%, or 159.67 points.

Each of the three major indices tumbled over the past week. The S&P 500 and Dow are each lower by about 1.2%, while the Nasdaq fell about 0.84% since last Friday.

Weak economic data from China and Europe stoked worries of sluggishness in global growth. China’s industrial production slowed to 5.4% in November, while retail sales rose just 8.1% over last year, representing the weakest pace of growth since 2003. However, fixed-asset investment growth expanded 5.9% in the first 11 months of the year, pointing to potential stimulus that could help offset some of the slowdown.

Meanwhile, European car sales dropped for the third consecutive month. Passenger-car registrations fell 8.1% in November over last year, bringing year-to-date growth to just 0.6% in the EU and European Free Trade Association region, the European Automobile Manufacturers Associated reported.

Some of these global growth concerns, however, were alleviated after a reading of U.S. retail sales pointed to strength in domestic consumer demand. An advance reading of U.S. retail sales for November came in at more than double analysts’ consensus estimates, supporting expectations of an interest rate hike next week after the Federal Open Market Committee’s next meeting.

Throughout the week, equities have struggled to find direction as investors waded through trade war developments and a slew of decisive global events. This week saw UK Prime Minister Theresa May survive a vote of no-confidence launched by members of her own party over her handling of Brexit. Italian Prime Minister Giuseppe Conte proposed cutting the Italian deficit target for 2019 to 2.04% of GDP from 2.4%, conceding to the European Commission’s call to cut the target over concerns about Italy’s existing pile of debt. The European Central Bank removed a four-year policy of crisis-fighting quantitative easing. Two Canadians were detained in China in what is considered to be an act of rebuttal over the recent arrest of the CFO of Chinese tech giant Huawei Technologies in Canada.

On Friday, China confirmed that it will cut its 40% tariff on U.S.-made autos to 15%. This brings the rate back down to the level it had been before the U.S. and China began imposing retaliatory tariffs against one another to escalate the trade war. The shrunken levy will be put in place for 90 days beginning on January 1.

Recent investor activity has reflected the market jitters. Investors seized record amounts of cash from U.S.-based stock funds for the seven-day period from Thursday to Wednesday, according to Lipper data. A record $46 billion was pulled from U.S. stock mutual funds and exchange-traded funds, and $13 billion was taken out of bonds. Although high turnover tends to take place around the end-of-the-year for tax reasons and other purposes, this amount of volume in a single week has been unprecedented.

Other firms have also recently noted that cash is becoming a compelling alternative to stocks. Equity strategists at Goldman Sachs and Bank of America Merrill Lynch have both characterized cash as “competitive.” Jefferies analysts noted that “the equity market is facing some higher competition from higher rates,” suggesting that investors could potentially see better returns by leaving cash in a risk-free, interest-bearing bank account.

Individual investors are, in fact, more pessimistic about equity market performance than they have been in more than five years, according to a survey by the American Association of Individual Investors. Based on the results for the week ending December 12, 49% of individual investors carry a bearish sentiment about the direction of the stock market for the next 6 months.

STOCKS: Johnson & Johnson slumps after Reuters reported that the company knew baby powder contained asbestos

Shares of Johnson & Johnson (JNJ) dropped in the wake of a Reuters report that the company knew for years that its baby power supplies contained asbestos. The report published Friday was based on a review of documents and deposition and trial testimony, which Reuters said showed that from at least 1971 to the early 2000s, multiple employees from across departments were aware that raw talc and finished powders sometimes tested positive for small amounts of asbestos. An outside litigator for J&J told Reuters that the findings were “false and misleading.” Shares of J&J fell 10.13% to $132.86 each as of market close, erasing more than $39 billion in market value. 

Shares of Apple (AAPL) continued their downward descent after yet another analyst cut estimates for critical iPhone sales. DA Davidson cut its price target to $280 from $290 on Friday and cautioned that unit sales in the near-term were probably lower than previously expected. This follows a slew of other analysts that have slashed Apple’s price target in the wake of the company’s most recent earnings report, when Apple announced it would no longer be reporting the number of iPhones sold. The average analyst price target on Apple is just under $221, about 32% above current share prices, according to Bloomberg data. Shares of Apple fell 3.2% to $165.48 each as of market close.

Costco (COST) reported narrowing margins and slightly missed consensus estimates on the top and bottom lines. Adjusted earnings were $1.61 per share on revenue of $34.31 billion, while consensus expectations called for $1.62 per share on revenue of $34.79 billion. Costco also faces mounting pressure from rivals including Sam’s Club, the Walmart warehouse chain, and BJ’s Wholesale Club Holdings, which recently went public. Shares of Costco fell 8.59% to $207.06 each as of market close.

Starbucks (SBUX) said it plans to expand delivery through a partnership with UberEats and expand its physical locations in relatively unsaturated markets, including in the Midwest and Sun Belt. However, the coffee chain’s stock came under pressure after the company cut its long-term earnings per share outlook during its investor day on Thursday. Starbucks now expects earnings per share to rise at least 10% over the long-term, down from 12% growth previously. Starbucks also said its same-store sales – a key metric for restaurant companies – could be as low as 1% over the long-term in China, one of the coffee chain’s key markets. For the rest of the world, Starbucks sees sales growth of 3% to 4%. Shares of Starbucks fell 2.35% to $65.34 each as of market close.

ECONOMY: U.S. retail sales, industrial production rose in November

U.S. advanced retail sales rose 0.2% month-over-month in November, the Commerce Department reported Friday, outpacing estimates of a 0.1% increase for the month, according to Bloomberg analysts. The control group subset, which aligns with the consumer spending component of GDP and points to underlying consumer demand, saw sales jump 0.9% from 0.7% in October. This was more than double expectations of a 0.4% month-over-month increase in November. The so-called control group excludes sales of automobiles, gasoline, building materials and food services.

“This is a great start to the holiday season, and the control measure – the best predictor of consumers’ spending on non-durable goods in the GDP accounts – is set for a hefty 6% nominal annualized Q4 gain, accelerating from 3.9% in Q3, Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Friday. “The kick from the tax cuts is gone, but the huge and rapid drop in retail gas prices is freeing-a great deal of cash at just the right time for retailers. Expect to see estimates for Q4 consumption, GDP, and retailers’ earnings revised up on the back of this report.”

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Dec. 3, 2018. Photographer: Michael Nagle/Bloomberg via Getty Images

Industrial production rose 0.6% in November, reversing a 0.2% downwardly revised decline in October, the Federal Reserve said Friday. This exceeded expectations for a 0.3% increase in U.S. industrial production, according to Bloomberg data. Manufacturing output, accounting for about 12% of the economy, stayed flat in November following a downwardly revised 0.1% decrease in October.

The solid 0.6% rise in headline industrial production last month was entirely due to a surge in mining and utilities output, which will be reversed over the coming months,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note Friday. “The bigger story is the renewed weakness in manufacturing output, which suggests that the sector is finally succumbing to the twin headwinds of weaker global demand and a stronger dollar.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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