Earnings Season Uncertainty Weighs on Market Sentiment

U.S. equities melted lower on Monday despite two separate attempts by the bulls to push into the green. Sort of a listless session really, as investors await the start of the third-quarter earnings season later this week, with big banks on the docket.

In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.2% and the Russell 2000 lost 0.4%. Treasury bond trading was closed for Columbus Day, the dollar was weaker, gold gained 0.8% and crude oil added 0.6%.


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Breadth was slightly negative, with 1.2 decliners for every advancing issue on light volume, at just 73% of the NYSE’s 30-day average. Energy stocks led the way, with a 0.3% gain while healthcare was the laggard, down 0.7%, in the aftermath of reports Amazon.com, Inc. (NASDAQ:AMZN) is looking at getting in on the pharmacy space. Walgreens Boots Alliance (NASDAQ:WBA) fell 3.2% to hit levels not seen since late 2014.

There was bloodshed elsewhere in the sector as well. Dialysis provider DaVita Inc (NYSE:DVA) fell 9.9% after suffering a downgrade from JPMorgan analysts on heightened concern about earnings.

Medtronic (NYSE:MDT) fell 3.6% on the impact on its manufacturing facilities in Puerto Rico from hurricane damage along with a downgrade from Wells Fargo analysts. General Electric Company (NYSE:GE) fell 3.9% after a number of senior leadership changes were announced late on Friday.

On the upside, Wal-Mart Stores Inc (NYSE:WMT) gained 1.9% after a positive feature in Barron’s predicting a 15% share price rise on expected traction in its e-commerce business.

Although headlines were quiet, there was some attention on the feud between President Trump and Republican Senator Bob Corker that were seen as dimming the odds of successful tax reform legislation.

Conclusion


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A few fresh catalysts loom as we head into November, which is traditionally the start of the “Santa Claus” tailwinds. Apple Inc. (NASDAQ:AAPL) will open pre-orders for the iPhone X at the end of the month and needs a change of story after embarrassingly low demand for the iPhone 8 and the LTE connectivity issue with the Apple Watch Series 3.

Trump is set to announce the successor to Fed Board Chair Janet Yellen, with politically connected but policy hawkish Kevin Warsh the current favorite.

And the Q3 earnings reporting season will kick off with big banks on the docket, with Bank of America Corp (NYSE:BAC) reporting before the bell on Friday.


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According to FactSet, S&P 500 earnings growth is expected to clock in at 2.8% led by energy. But when accounting for the average earnings beat rate — since management teams like to lower their hurdles to they can delivery upside surprises — we’re more likely to see something closer to 6%.

Keep an eye on the CBOE Volatility Index (INDEXCBOE:VIX), which is inching higher after a two-month “vol squeeze” as stocks melted higher.

Check out Serge Berger’s Trade of the Day for Oct. 10.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


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