S&P 500 takes hardest hit in two months; investors brace for earnings
U.S. stocks fell sharply on Monday, with the Dow Jones Industrial Average slammed with a triple-digit drop, as investors braced for quarterly earnings that begin in earnest this week.
"One driver is we're off to a mixed start to the earnings season; negative preannouncements exceed positive by a record 10-to-1 margin, so the bar has been set very low," said Alan Skrainka, chief investment officer at Cornerstone Wealth Management.
Stocks declined to session lows after a speech Monday afternoon by Atlanta Federal Reserve President Dennis Lockhart, in which he said that if all goes as expected, the central bank would continue to taper its monthly bond purchases known as quantitative easing.
Equities had been "drifting lower, then Fed comments provided an extra leg down," said Dan Greenhaus, chief market strategist at BTIG. But, "stocks have been trading poorly for a couple of days now in front of earnings," with some people looking to corporate results to justify last year's performance, which had the S&P 500 rising more than 29 percent," Greenhaus added.
Calling S&P 500 valuation lofty by nearly any measure, Goldman said stocks could be primed for a pullback.
Apart from some major event, a rise in interest rates "in an accelerated manner" rather than a controlled one could spark a market correction of 10 percent, said Tim Speiss, a vice president at EisnerAmper Wealth Planning, who added that he was not forecasting such an event.
Posting its worst session since Sept. 20, the Dow Jones Industrial Average lost 179.11 points, or 1.1 percent, to 16,257.94, with 29 of its 30 components finishing in the red.
Merck & Co. was the sole blue-chip gainer, up 6.5 percent. A preliminary review posted on the U.S. Food and Drug Administration's web site had the agency citing "robustly positive" clinical trial results in saying its blood clot-preventing drug vorapaxar should be approved.
The S&P 500 declined 23.17 points, or 1.3 percent, to 1,819.20, with consumer discretionary and energy the greatest laggards among its 10 major industry groups.
Beam surged after Japan's Suntory Holdings said it would acquire the maker of Jim Beam and Maker's Mark bourbons in a deal with a total value of $14 billion. Lululemon Athletica slid after the sportswear retailer cut its profit and sales outlook for the fourth quarter. Symantec fell after Morgan Stanley advised investors sell shares of the anti-virus software manufacturer. Juniper Networks surged after Bloomberg cited two people familiar with the matter in reporting the maker of computer-networking equipment was being targeted by activist hedge fund Elliott Management.
For every share that rose, more than two fell on the New York Stock Exchange, where nearly 733 million shares traded. Composite volume neared 3.6 billion.
"The selloff accelerated to the downside after comments from the Fed's Lockhart. It sounded boiler plate to me," noted Elliot Spar, market strategist at Stifel, Nicolaus & Co.
"The Fed wants out of QE and the one data point of Friday's payroll disappointment is not going to be enough to change that," said Peter Boockvar, chief market analyst at the Lindsey Group, referring to the December jobs report, which came in significantly below expectations.
"Early indications suggest a strong year-over-year gain (from a weak base) to close to $28 in S&P 500 earnings," wrote David Kelly, chief global strategist at J.P. Morgan Funds, in an emailed research note.
On Friday, stocks ended mixed with Wall Street not sure what to make of December's dismal payrolls report, given how far off it was from expectations and other economic reports that signaled an improving labor market.
"There are enough distortions in the data to legitimately question whether the economy is in second, third or fourth gear. However, it clearly has positive momentum which suggests that interest rates will need to move higher in the months ahead," Kelly noted.
—By CNBC's Kate Gibson
Coming Up This Week:
Tuesday - NFIB small business survey at 7:30 a.m. Eastern., Retail sales at 8:30 a.m. Eastern. Import prices at 8:30 a.m. Eastern. Business inventories at 10 a.m. Eastern. Philadelphia Federal Reserve Bank President Charles Plosser talks at 12:45 p.m. Eastern. Dallas Fed President Richard Fischer talks about the economy at 1:20 p.m. Eastern. Earnings from JPMorgan Chase, Wells Fargo and Shaw.
Wednesday: Producer Price Index at 8:30 a.m. Eastern. Empire State survey at 8:30 a.m. Eastern. Beige Book at 2 p.m. Eastern. Atlanta Fed's Dennis Lockhart on the economy and policy at 5:45 p.m. Eastern. Earnings from Bank of America, Fastenal, CSX, Kinder Morgan, Clarcor and Plexus.
Thursday: Initial jobless claims at 8:30 a.m. Eastern. Consumer price index at 8:30 a.m. Eastern. Treasury international capital flows data at 9 a.m. Eastern. San Francisco Fed President John Williams on zero rate policy at 9:15 a.m. Eastern. Philadelphia Fed survey at 10 a.m. Eastern. NAHB survey at 10 a.m. Eastern. Fed Chairman Ben Bernanke at Brooklings Institution's Conference on Central Banking after the Great Recession at 11:10 a.m. Eastern. Earnings from BlackRock, Citigroup, Goldman Sachs, Taiwan Semiconductors, UnitedHealth, BB&T, Charles Schwab, First Republic Bank, American Express, Intel, PNC Financial, Capital One, Sallie Mae, People's United Skyworks Solutions.
Friday: Housing starts at 8:30 a.m. Eastern. Industrial production at 9:15 a.m. Eastern, Consumer sentiment at 9:55 a.m. Eastern, JOLTS at 10 a.m. Eastern. Richmond Fed President Jeffrey Lacker at 12:30 p.m. Eastern. Earnings from General Electric, Morgan Stanley, Schlumberger, Bank of NY Mellon, Comerica, SunTrust, Wipro.
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