For better or worse — likely the latter — first-quarter earnings season gets going this week and that may be one impetus behind broader market declines on Monday, as all three of the major domestic equity benchmarks saw rocky numbers.
- The S&P 500 slipped 1.01%
- The Dow Jones Industrial Average dropped 1.39%
- The Nasdaq Composite gained a paltry 0.48%
- Caterpillar (NYSE:CAT) was by far the worst-performing Dow stock to start the week, shedding 8.52% after Bank of America lowered its rating on the industrial machinery maker to “Sell” from “Hold,” saying even after COVID-19 passes, it may be awhile before Caterpillar rebounds.
Oil prices rallied after the Organization of Petroleum Exporting Countries (OPEC) and some other big oil-producing nations agreed to trim output by 9.7 million barrels per day starting in May. That was enough to put Chevron Corporation (NYSE:CVX) in the Dow winners column, but rival Exxon (NYSE:XOM) was in the more heavily-populated losers group.
As is always the case, the financial services sector — the third-largest sector allocation in the Dow –kicks off earnings season and that means investors will be treated to reports from Dow components Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM), among others, this week.
Investors appeared concerned about what the earnings updates from those names will bring as both were among the 24 Dow losers today.
As noted above, Dow winners were scarce on Monday, but Apple (NASDAQ:AAPL) was part of that small group after a report from China’s Ministry of Industry and Information Technology indicated that iPhone sales in the world’s second-largest economy bounced back in a big way in March.
Barclays analyst Tim Long points out that Apple is running cost-cutting promotions in China to steal market share from native Huawei and other 5G competitors while pointing out that Apple’s China supply chain, previously hampered by the novel coronavirus outbreak, is returning to normal.
Apple’s Monday gains were modest, but the news out of China is positive and could be a harbinger of better things to come for the bellwether in the latter stages of 2020.
Interesting Intel Showing
Intel (NASDAQ:INTC) was one of the top performers in the Dow today with an assist from a note by Citi analyst Christopher Danely, one of the notable chip bears on the Street. Danely points out fears of supply chain disruption in China may be leading to chip hoarding.
“While we agree demand has held up for the most part, we believe the supply chain is hoarding inventory due to fears of supply disruption which has occurred in Asia,” the analyst said in a note to clients.
Disney (NYSE:DIS) perked up last week due in part to some good news on the streaming front, but that ebullience was short-lived. The stock traded lower Monday on news the California-based company is furloughing 43,000 workers because of the coronavirus. Interestingly, Guggenheim raised its price target on the stock to $100 from $98.
Retreating Ahead of Earnings
Johnson & Johnson (NYSE:JNJ) steps into the earnings confessional on Tuesday and the stock traded lower today, indicating some investors want to reduce exposure to the blue-chip pharma name heading into that report.
Analysts expect JNJ to post earnings of $1.86 per share and sales of $18.1 billion for the January through March period.
Bottom Line on the Dow Jones Today
Stocks retreating today wasn’t much of a surprise given the S&P 500 notched one of its best weekly performances on record last week. I’ll keep it real: riskier assets are still struggling, but the scenario could be far more dire if not for rapid monetary policy response to the COVID-19 outbreak.
“Global policy makers have been bold and timely in both their fiscal and monetary policy responses, so much so that we see a right-tail scenario brewing for the financial economy in the quarters ahead,” according to BlackRock. “Indeed, in February and March alone, global fiscal and monetary policy responses totaled a staggering 11% of global GDP, and it’s highly likely that there’s more policy assistance on the way.”
The near-term hurdle for stocks will be the guidance companies offer up during their earnings reports. If they are issuing dire warnings on the fourth quarter or worse, 2021, more downside could be on the way.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.