A rally in stocks on Wall Street lost steam on Monday, with the Dow Jones Industrial Average shedding more than 350 points from early in the session.
The Dow Jones Industrial Average lost 215.65 points, or 0.69%, to 31,072.61, accelerating losses in late trading and erasing a 356-point jump earlier in the day. The S&P 500 fell 0.84% to 3,830.85. The Nasdaq Composite fell 0.81% to 11,360.05
The late day withdrawal follows a Bloomberg report that said Apple plans to slow hiring and growing spending next year to deal with a potential recession. Apple shares fell nearly 2.1%.
“When Apple, a $2.4 trillion company in terms of market capitalization, reverses, it’s obviously going to have a pronounced impact on the major indexes and just remind people that companies are giving up because of what they’re seeing”. said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Boockvar said Apple’s earnings will be important for the broader market in terms of how they manage the currency, what’s happening in the Chinese business and how they will react as consumers move more toward services than spending on goods
“People aren’t going to keep buying laptops every year and they’re not going to change their phone every year,” Boockvar added.
A strong earnings report from Goldman Sachs initially boosted shares, following mixed results last week from banks JPMorgan Chase and Morgan Stanley, although some on Wall Street warned investors to exercise caution during the ‘expect it to be a hectic earnings season.
“We expect volatility to remain elevated as the market switches between the risk of a price recession and the odds of a soft landing with each piece of data,” Citi’s Scott Chronert said in a recent note.
On Monday, Goldman Sachs posted earnings and revenue that easily beat expectations, even as CEO David Solomon said during an earnings call that inflation is “deeply entrenched” in the economy. Shares were up 5.6% at one point before relaxing and ending the day with a 2.5% gain.
Strong results from its fixed-income operations helped Goldman Sachs offset a drop in investment banking revenue. The bank’s bond traders generated about $700 million more in revenue than expected after increased trading in interest rates, commodities and currencies.
Bank of America reported quarterly earnings that beat analysts’ expectations, and shares rose slightly. IBM will release the results after the closing bell.
Other major companies reporting earnings this week include Johnson & Johnson, Netflix, Lockheed Martin, Tesla, United Airlines, Union Pacific and Verizon.
Expectations of earnings
Despite growing recession fears, S&P 500 companies are expected to post a 4.2% year-over-year rise in second-quarter profits, according to consensus analyst estimates compiled by FactSet. According to FactSet, earnings for the S&P 500 are growing 10.2% over the quarters.
Full-year profit expectations remain high, as analysts estimate S&P 500 companies will boost 2022 earnings by 9.9%, data compiled by FactSet show.
“We expect the results to be broadly correct,” said Terry Sandven, chief equity strategist at US Bank Wealth Management. “The focus will be primarily on margins and the extent to which companies are able to pass on higher input costs will determine where valuations can go.”
Energy stocks beat the broader market index. Hess shares rose 4.8%. Devon Energy gained 3.6% and Marathon Oil rose nearly 3.5%.
Meanwhile, Boeing shares fell slightly on news that Delta Air Lines was buying 100 737 Max 10 jets. Delta shares rose about 3.5%.
The less aggressive Fed?
Investors gauged the likelihood that the Fed will be less hawkish than feared at its meeting later this month. A Wall Street Journal Sunday’s report said the central bank is on track to raise interest rates by 75 basis points, rather than the full percentage point increase expected by some market participants.
Goldman Sachs chief economist Jan Hatzius also said in an overnight note that he expected the Fed to raise rates by three-quarters of a point.
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Still, fears of a recession have been prominent in recent weeks as Wall Street considered decades-high inflation, sharply rising interest rates and a sign of an inverted yield curve.
“Markets are likely to remain volatile in the coming months and trade based on hopes and fears about economic growth and inflation,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a recent note to customers.
“A more durable improvement in market sentiment is unlikely until there is a sustained decline in both headline and core inflation readings to reassure investors that the threat of consolidated price increases is happening,” added.
– CNBC’s Patti Domm contributed to this report.
Read today’s market coverage in Spanish here.