U.S. equities mostly finished higher on Tuesday in choppy, but largely uneventful trading. The Dow Jones Industrial Average is chewing through resistance near the 18,000 level (which it crossed for the first time since July on Monday) with a mid-day excursion below that level in the 12 o’clock hour before the bulls battled back.
But a series of disappointing first-quarter earnings reports and Federal Reserve media blackout ahead of its policy meeting later this month suggest additional selling pressure is forthcoming.
In the end, the Dow Jones gained 0.3%, the S&P 500 Index wafted up 0.3%, the Nasdaq Composite took a 0.4% dive and the Russell 2000 ended the day 0.1% higher. Treasury bonds were weaker, the dollar was down, gold gained 1.5% resulting in big gains for precious metals stocks and crude oil gained 3.1% to close at $41.01.
Materials stocks led the way with a 2.1% gain as the Market Vectors Gold Miners ETF (NYSEARCA:GDX) rose 4.8% testing levels not seen since September 2014. Energy gained 1.9% as a sector.
Technology stocks were the laggards as Q1 results disappoint. Netflix, Inc. (NASDAQ:NFLX) dropped 13% after reporting better-than-expected earnings and revenue on Monday night, but missing on subscriber growth guidance (especially in international markets). International Business Machines Corp . (NYSE:IBM) lost 5.6% after posting a low-quality earnings beat that relied on lower taxes and continuing a pattern of declining revenues going back to 2012. Tesla Motors Inc (NASDAQ:TSLA) dropped 2.6% on a Consumer Reports article suggesting the Model X could face some quality issues.
After the close, Intel Corporation (NASDAQ:INTC) dropped 3.1% after reporting an earnings beat and revenue miss, cutting forward guidance and announcing 12,000 job cuts (around 11% of its workforce). The stalled PC industry remains a drag as the company tries to reorient toward cloud computing and the Internet of Things.
This really sums up one of the biggest risks for stocks here — as large caps contend with a massive overhead resistance pattern: The separation of stock prices from earnings expectations as shown above.
The result is an increase in valuation multiples. Which is hard to justify in an environment of Fed policy tightening and tepid U.S. GDP growth, with the Atlanta Fed’s GDPNow Q1 forecast at just 0.3%. Already, S&P 500 earnings are down double digits from the high set in 2014.
No wonder then that investors are pulling the plug on momentum favorites like Apple Inc. (NASDAQ:AAPL), which broke its three-month uptrend on Monday. Or TSLA, which tested below its 20-day moving average for the first time since February. Amazon.com, Inc. (NASDAQ:AMZN), which suffered its first decline since April 7. Or Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), which suffered its worst one-day loss since March 7.
In anticipation of further profit-taking and earnings letdowns, I’ve recommended the May $107 AAPL puts to Edge Pro subscribers.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
