U.S. equities finished mostly lower on Monday in relatively light trading as traders reacted to an intensifying flow of third-quarter earnings results. Weighing on sentiment is upcoming economic data out of China on Wednesday and a policy decision by the European Central Bank on Thursday.
In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 Index lost 0.3%, the Nasdaq Composite lost 0.3% and the Russell 2000 lost 0.2%. Treasury bonds were firmer, the dollar weakened, gold gained 0.1% and crude oil lost 0.8% to move back below the $50-a-barrel threshold.
Defensive utility stocks led the way with a 0.6% gain, while consumer discretionary stocks were the laggards, down 0.8%. Take-Two Interactive (NASDAQ:TTWO) gained 5.1% on indications Rockstar Games is preparing to unveiling a sequel to the hit Red Dead Redemption game. Pandora Media Inc (NYSE:P) lost 3.5% after being downgraded by analysts at Bank of America Merrill Lynch on a crowded on-demand music market.
Netflix, Inc. (NASDAQ:NFLX) lost 1.7% on caution ahead of earnings after the close, which was totally an example of the “market” being stupid: Shares exploded nearly 20% higher in after-hours trading on a top- and bottom-line beat with total streaming revenue up to $2.3 billion from $1.7 billion a year ago. Total streaming net subscriber additions totaled 3.8 million from 1.7 million last quarter and the 2.3 million analysts were expecting. Impressive.
One wrinkle is that the company is rapidly burning through cash, with Q3 free cash flow down $506 million vs. the $254 million drop last quarter and the $252 million drop a year ago.
International Business Machines Corp. (NYSE:IBM) fell 3.3% despite reporting better-than-expected revenues and earnings on a drop in profit margins. United Continental Holdings Inc (NYSE:UAL) was largely unchanged on a top- and bottom-line beat.
Before the open, Bank of America Corp (NYSE:BAC) reported solid numbers with revenues of 41 cents per share (vs. 34 cents expected) on earnings of $21.6 billion (v. $20.8 billion). The market largely shrugged, with shares up just 0.3%
Industrial production remained weak, suffering year-over-year declines since 2015, as the factory sector remains moribund. Case in point, Ford Motor Company (NYSE:F) announced it was shutting four auto plants next week to align production with softening demand and bloated inventories. Vehicles affected include the Lincoln MKC, Ford Escape, Ford Fusion, Fiesta and F-150 pickup.
And finally, Democratic presidential contender Hillary Clinton continued to climb in the polls ahead of Wednesday’s final debate while odds of a Federal Reserve interest rate hike before the end of the year held near 70% thanks to some hawkish commentary. Fed vice-chair Stanley Fischer warned persistently low interest rates could threaten financial stability, encourage excessive risk-taking, and hurt banks by pinching net interest margins.
Overall, stocks continue to look vulnerable to a breakdown below Dow 18,000 amid narrowing market breadth, the specter of higher interest rates, the flow of Q3 earnings, and the fact that corporate buybacks are in a blackout period during earnings season.
I continue to recommend a defensive positioning, such as the October $29.50 General Electric Company (NYSE:GE) puts recommended to Edge Pro subscribers that are carrying a gain of nearly 80%.
Anthony Mirhaydari is founder of the million and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
