With a few weeks of positive returns, sentiment among investors appears to be generally bullish. However, today’s red open has some investors asking: Why are stocks down today?
That’s generally a pretty complex question to answer. However, today, it appears a few things are at play.
Banks earnings season is kicking off, with investors seemingly mixed on how these earnings will come in. This week, JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) kick off the action. Each of these stocks have traded lower today, though all three have recovered from their lows and are trading essentially flat at the time of writing.
It appears analysts and investors are still pricing in year-over-year declines in profits this quarter. Consensus estimates are for an 8.8% decline in profits across the S&P 500 this quarter.
However, investors will note this consensus has improved of late. Additionally, forward-looking projections for big banks, and the broader economy, are gaining positive momentum. Banks have been given the green light by the Federal Reserve to resume share buybacks and dividend increases, another factor investors will be watching closely this week.
Accordingly, questions remain as to whether today’s market action is a buy-the-dip opportunity, or representative of something more.
Why Are Stocks Down Today?
Waves of broader risk-off sentiment have taken hold of late due to rising bond yields. Today, the U.S. 10-year treasury inched 15 basis points higher, sparking larger losses for growth stocks represented in the Nasdaq, vs. the Dow Jones or S&P 500 indices.
A growth-to-value rotation is a long time coming, according to many stock market pundits. Based on some metrics, the stock market has never been this overvalued before today. Accordingly, any reason to take profits at these levels appears to be a good one for many investors.
I anticipate earnings season will spark some heightened volatility this week as investors digest the numbers. That said, for long-term investors with a reasonably long investment time horizon, staying invested in times like these is the best way to generate wealth. Thus, it’s highly likely today’s volatility will be just another small blip on the longer-term chart which will be forgotten very shortly.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
