U.S. equities moved lower on Thursday as investors could no longer deny the flow of disappointing earnings results nor the weak performance in popular large-cap technology stocks. The result was the biggest one-day loss for stocks in two weeks.
With OPEC-Russia supply cut rumors fading as a catalyst (after Sunday’s non-deal) and the Federal Reserve media blackout ahead of its policy announcement next week, stocks were dragged lower as traders focused on fundamentals, like falling profitability and weak U.S. economic data.
In the end, the Dow Jones Industrial Average lost 0.6% to close below the 18,000 level, the S&P 500 dropped 0.5%, the Nasdaq Composite lost 0.1% and the Russell 2000 fell by 0.6%. Treasury bonds were weaker, the dollar was little changed after choppy trading, gold fell 0.3% reversing earlier strength and crude oil lost 1.3% to close at $43.60 a barrel.
Healthcare stocks led the way with a 0.6% gain. Sportswear maker Under Armour, Inc. (NYSE:UA, NYSE:UA.C) gained 6.8% on a first-quarter earnings beat and improved sales. Telecoms were the laggards, down 2.7%. United Continental Holdings Inc (NYSE:UAL) fell 10% on weak guidance citing a strong dollar, lower fuel surcharges, travel reductions from customers impacted by oil weakness and competitive actions.
Overnight, the European Central Bank left policy unchanged (as expected) after a big stimulus unveiling at the prior meeting. ECB Chief Mario Draghi disappointed the stimulus junkies, however, with comments emphasizing the need for patience in terms of developments surrounding inflation. That caused investors to question whether the ECB is considering any additional stimulus measures right now.
On the economic front, the Philly Fed Business Conditions Index fell to -1.6 in April from +12.4 in March, well below the consensus estimate for a +9.0 result. New orders and shipments were both weak. Employment cratered to -18.5 from -1.1, the fourth straight reading in negative territory (which indicates month-over-month contraction).
As a reminder, the current Atlanta Fed GDPNow Q1 growth estimate stands at just 0.3%. Just let that sink in.
Earnings headlines dominated after the close, with Microsoft Corporation (NASDAQ:MSFT) down 5% in extended trading, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) down 4.3% and Starbucks Corporation (NASDAQ:SBUX) down 4.8%.
Both MSFT and GOOGL missed on bottom-line results. MSFT reported adjusted earnings per share of 62 cents vs. the 63 cents expected. Alphabet reported adjusted earnings of $7.50 per share vs. $7.90 expected, with $16.5 billion in sales — lower than the $16.6 billion expected. SBUX reported earnings in line with the consensus at 39 cents per share, but revenues of $4.99 billion missed estimates for $5.02 billion.
Looking ahead, the earning rollout will continue with reports from General Electric Company (NYSE:GE), Caterpillar Inc. (NYSE:CAT), and McDonald’s Corporation (NYSE:MCD) among others. And the news is likely to be disappointing.
As a result, I’m recommending my clients maintain a defensive posture focused on weak large-cap tech stocks like Apple Inc. (NASDAQ:AAPL) that have succumbed to selling pressure in recent days. Edge Pro subscribers are up nearly 10% in their May $107 AAPL puts.
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