Equities moved lower on Monday, ending three consecutive days of gains, after a surge at the open brought out the sellers on worrisome headlines out of Greece that a debt default will be considered should bailout negotiations with the European establishment fail.
Although this isn’t really news (it was always the “Plan B”) and was quickly denied by officials, it brought back to the forefront an issue that investors had been comfortably ignoring. Adding to the confusion were conflicting reports Athens could be looking at holding early elections to try to strengthen its negotiation position with Brussels.
In the end, the Dow Jones Industrial Average lost 0.5%, the S&P 500 lost 0.5%, the Nasdaq Composite lost 0.2%, and the Russell 2000 managed to gain 0.1% after tagging a new intraday high earlier in the session.
Financial stocks led the way with a gain of 0.3% at the sector level while industrials were the laggards, falling 1.1%. Hopes are high that with the bulk of major regulatory settlements in the rearview mirror, the economy improving, and higher interest rates approaching (which will lift net interest margins), this reporting season could be the start of a positive feedback loop for bank stocks.
Crude oil gained 0.5% to close at $51.92 a barrel as the black stuff continues to contend with overhead resistance from its February highs. The action in currencies and bonds was subdued.
Overall, the session which thinly traded and relatively quiet as the focus remains on the epic market ramp underway in China on expectations a recent slowdown in the economic data will spur the People’s Bank of China to unleash another wave of monetary policy easing.
Investors are also worried about the heavy flow of Q1 earnings releases this week starting with JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) before the bell on Tuesday, with Intel Corporation (NASDAQ:INTC) reporting after the close. Wednesday will see Bank of America Corp (NYSE:BAC) before the bell and Netflix, Inc. (NASDAQ:NFLX) after the close. Thursday features Citigroup Inc (NYSE:C) and Goldman Sachs Group Inc (NYSE:GS) while Friday will finish up with General Electric Company (NYSE:GE).
Expectations have been greatly diminished heading into the reporting season as executives have warned of the drag from the strength in the U.S. dollar (which reduces the value of foreign profits) as well as the comedown in energy prices (which will hit energy earnings hard).
According to FactSet, earnings are expected to fall 4.8% on a year-over-year basis in the first quarter. If that happens, it would be the worst result since the third quarter of 2012.
Edge Pro subscribers enjoyed a lift in their April call option positions in Hewlett-Packard Company (NYSE:HPQ) as shared bucked the dour mood to rise 1.8% and better-than-expected PC shipments in the first quarter.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
