Stocks Suffer Losses as Earnings Heat Up

Large-cap stocks took a breather on Tuesday, ending a seven-day winning streak for only the second decline since Sept. 29. Investors were cautious ahead of the real start of the third-quarter earnings season with 20% of the S&P 500 set to report this week.

In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 shed 0.7%, the Nasdaq Composite dropped 0.9% and the Russell 2000 took a 1.4% step down. The dollar was mostly weaker, gold gained 0.1%, and crude oil lost 0.9% to close at $46.66 a barrel.

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Technically, we could be looking at a test of the 17,000 level on the Dow Jones as shown above.

Overnight news out of China was disappointing with imports falling 20.5% year-over-year vs. expectations of a 16% drop. That was the eleventh consecutive monthly decline. Exports fell 3.7% year-over-year, which was better than the 6% decline that was expected — a sign that the country’s recent currency devaluation is starting to help boost export competitiveness.

On the monetary policy front, Federal Reserve Governers Lael Brainard and Daniel Tarullo sounded dovish notes, both saying that uncertainty about global trends and energy prices suggests it would be best to nurture the U.S. economy here rather than withdrawing policy support. Tarullo added that it would be inappropriate to raise interest rates now with absent signs of inflation or wage growth.

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Defensive telecom stocks led the way by limiting their decline to a 0.1% loss. Health care was hit the hardest, down 1.2% as a group with the Biotech iShares (NASDAQ:IBB) losing 3.2% on lingering political concerns surrounding high prescription drug prices — something that may be featured in tonight’s Democratic Presidential Debate on CNN.

In corporate news, Wausau Paper Corp. (NYSE:WPP) gained 40.2% after agreeing to be acquired in a deal valued at $513 million. Twitter (NYSE:TWTR) gained 1.1% after guiding Q3 revenue and adjusted operating earnings to at or above the high end of the previous range. It also announced layoffs affecting about 8% of its global workforce. JetBlue (NASDAQ:JBLU) lost 7.9% after being downgraded to neutral from overweight by JPMorgan due to weak industry pricing.

Before the bell, Johnson & Johnson (NYSE:JNJ) reported better-than-expected earnings of $1.49 per share vs. the $1.44 analysts were expecting; but revenues missed at $17.1 billion vs. $17.4 billion. International sales and currency impacts weighed.

After the close, Intel Corporation (NYSE:INTC) reported better-than-expected earnings of 64 cents per share vs. the 59 cents analysts were expecting. Revenues came in at $14.5 billion vs. $14.2 billion expected. Profit margins came in a little and the company cut its fiscal 2015 capital expenditures budget by around $500 million to $7.3 billion.

Not surprisingly, PC and tablet shipments were weak while activity is picking up in its data center and Internet of things businesses.

After an initial pop higher, INTC is now down 3.4% after hours as investors react poorly to conference call commentary on data center business growth projections in lower single-digits vs. the prior forecast of growth of around 15%.

JPMorgan (NYSE:JPM) reported disappointing earnings of $1.32 per share vs. the $1.38 analysts were expecting. Revenues also missed at $23.5 billion vs. the $23.8 billion expected. Shares dropped 1.2% in after-hours trading in response.

The Q3 reporting season will continue on Wednesday with results from Bank of America Corp. (NYSE:BAC) and Wells Fargo & Co. (NYSE:WFC) before the open and Netflix Inc. (NASDAQ:NFLX) after the bell.

Overall, according to Factset, third-quarter earnings for the S&P 500 are expected to decline 5.5% in what could be the first back-to-back earnings drop since 2009.

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.

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