U.S. equities mostly moved lower on Tuesday in a relatively quiet session as traders await the start of the third-quarter earnings season with Alcoa (NYSE:AA) reporting after the close on Thursday. After the biggest five-day rally for stocks of the year, the bulls cooled their heels a little.
In the end, the Dow Jones Industrial Average went up 0.1%, the S&P 500 dropped a modest 0.4%, the Nasdaq Composite fell 0.7% and the Russell 2000 lost 0.7% on the day. Commodities were higher, with gold adding 0.8%, and crude oil up 5.2% to $48.69 a barrel on geopolitical rumblings in Syria. Treasury bonds were a bit firmer, however.
Energy led the way thanks to the rise in oil, adding 2.2% at the sector level. Exxon Mobil (NYSE:XOM) added 1.4%, while Chevron Corporation (NYSE:CVX) added 3.5%. Healthcare stocks were the laggards, losing 2.3% as a group, as biotechs were hit hard.
The Biotech iShares (NASDAQ:IBB) lost 3.6% on increased scrutiny of high drug prices. The Wall Street Journal reported Tuesday that companies in the sector are relying on steady increases in the cost of older drugs — something that will only fan the flames and increase political focus on this area.
DuPont (NYSE:DD) gained 7.7% after its CEO unexpectedly resigned, raising breakup speculation. Pepsi (NYSE:PEP) gained 1.3% on an earnings beat and guidance raise. The Container Store (NYSE:TCS) lost 18.6% on a slight earnings miss on weaker profit margins, as analysts remain concerned about profitability and weak store traffic.
On the economic front, the International Monetary Fund cut its 2015 and 2016 global growth expectations from 3.3% and 3.8% to 3.1% and 3.6%, respectively, on a worsening outlook for emerging market countries. They cited a rising risk of more slowdown in China risking a “hard landing” scenario.
The U.S. trade balance is already feeling the pressure from these dynamics, with the trade deficit rising 15.6% to $48.3 billion in September. Exports fell 2% to their lowest level since October 2012.
All eyes are now turning to the start of the Q3 reporting season, with Factset predicting S&P 500 earnings will fall 5.1% — potentially the first back-to-back quarterly earnings decline since 2009.
After the close today, both Yum Brands (NYSE:YUM) and Adobe (NASDAQ:ADBE) were hit hard, down 16% and 11% respectively in after hours trading. YUM reported weaker-than-expected earnings and revenue, cut its forward guidance and warned that sales in China were slowing. ADBE, too, cut its fiscal 2016 guidance.
Expect more of this as the reporting season moves on, with low commodity prices, weakness in China and the drag from a strong dollar set to weigh again.
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.
