U.S. equities finished lower on Monday after trading with big gains early in the session. Wall Street’s strong open keyed off of a strong rally in Chinese equities overnight after weak inflation data rekindled hopes of more stimulus from Beijing.
But as the start of the Q1 earnings season approached — set to be the weakest result since 2009 — traders lost confidence and sold into the closing bell. Not even dovish comments from Dallas Fed president Robert Kaplan, downplaying odds of an April rate hike, could reinvigorate the bulls.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 lost 0.3%, the Nasdaq Composite lost 0.4% and the Russell 2000 lost 0.3%. Treasury bonds were mixed, the dollar was weaker, gold gained 1.1% and oil finished 1.7% higher to close at $40.38 a barrel.
Volatility and fear is increasing, with the iPath Short-term VIX (NYSEARCA:VXX) rising above its 18-day moving average as shown above. That pushed the VelocityShares 2x VIX (NASDAQ:TVIX) recommended to Edge subscribers to a 5.7% gain.
Materials stocks led the way thanks to nice gains by precious metals names. Consumer staples and healthcare were the laggards. Hertz Global Holdings Inc (NYSE:HTZ) fell 11.4% after lowering its Q1 and fiscal year guidance of rental car activity amid excess capacity and margin pressure.
Alcoa Inc (NYSE:AA) kicked the 1Q15 reporting season off after the close with a big revenue miss: Sales of $4.95 billion missed the $5.27 billion analysts were expecting. Aggressive accounting gimmickry helped pro-forma earnings of seven cents per share (or $108 million) beat expectations for a two cent loss. Management continues to focus on headcount reductions and other expense cutting measures.
Even still, adjusted operating profit margin fell to 16.4% from 18.7% last year. On a GAAP basis, which removes much of the accounting shenanigans, earnings per share were just $16 million or less than penny per share.
Expect more of this as the reporting season rolls on. According to FactSet, S&P 500 earnings are set to decline 9.1% from last year in what would mark the fourth consecutive quarter of falling profitability. JPMorgan Chase & Co. (NYSE:JPM) will report on Wednesday before the bell, Bank of America Corp. (NYSE:BAC) and Wells Fargo& Co (NYSE:WFC) will report Thursday morning, and Citigroup Inc (NASDAQ:C) will report on Friday.
As shown above, in addition to shaky fundamentals (remember, U.S. Q1 GDP growth is tracking at just 0.1% according to the Atlanta Fed), the technicals look troublesome as well with the Dow closing below its 18-day moving average for the first time since February.
The picture perfect uptrend out of the Feb. 11 low looks like it’s about to end.
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.
