Dow finishes 250 points lower as stock market gains fizzle ahead of bank earnings kickoff

Dow finishes 250 points lower as stock market gains fizzle ahead of bank earnings kickoff

JPMorgan Chase, Bank of America and Citigroup on deck with quarterly results

All three major U.S. stock indexes finished lower Monday, posting their largest one-day point drops in a week, as investors remained focused on the release of fresh inflation data and third-quarter earnings this week.

The Treasury market was closed in observance of the Columbus Day holiday, but other markets remained open as usual. Wednesday’s U.S. consumer-price report for September is the next major data release in the week ahead.

How did major indexes perform?

  • The Dow Jones Industrial Average DJIA, 0.05% fell 250.19 points, or 0.7%, to end at 34,496.06
  • The S&P 500 SPX, 0.03% dropped 30.15 points, or 0.7%, to close at 4,361.19.
  • The Nasdaq Composite COMP, 0.01% shed 93.34 points, or 0.6%, finishing at 14,486.20.

Stocks wobbled on Friday, but logged weekly gains. The Dow advanced 1.2% last week, while the S&P 500 rose 0.8% and the Nasdaq Composite eked out a 0.1% rise.

What drove the market?

The path of least resistance was initially higher to start the week of trading, but all three major indexes turned lower on the day after the early rally faded on lingering negative sentiment among investors.

Strategists were still dissecting Friday’s jobs report, which showed that 194,000 nonfarm jobs were added in September.

“What you saw at the open was really a head fake because futures were negative all morning,” said Matthew Tuttle, chief executive and chief investment officer of Tuttle Capital Management in Greenwich, Connecticut. “Buyers came in and tried to rally the market and that failed miserably.”

“Sentiment is fairly negative,” he said by phone. In addition to the prospect of the Fed tapering bond purchases and then raising rates down the road, “there are a whole bunch of inflation numbers this week and people aren’t expecting that to be good news in any way, shape or form.” Moreover, the S&P 500 is below its 50-day moving average and “if you’re trying to sit out there and be a buyer, there’s not a whole lot to grab onto.”

Analysts have expressed concern that supply-chain issues that have spread throughout the global economy will compress profit margins, and that inflation will limit consumer demand. Investors are awaiting Wednesday’s consumer-price index report for September — which could reflect record gas prices, higher shipping rates, and supply constraints —to determine how much longer price pressures might persist.

The yield on the benchmark 10-year Treasury TMUBMUSD10Y, 1.607% rose 14 basis points last week to 1.60%, the biggest weekly gain since Feb. 19. The rise in yields for bonds suggest that, at least, fixed-income investors are anticipating that the Fed will reduce its monthly purchases of $120 billion in Treasurys and mortgage-backed securities.

“Friday’s U.S. employment report was sufficiently mixed to revive the debate over whether the Fed will really go ahead with the planned tapering next month. Despite the headline miss, the underlying numbers should just about meet Chair [Jerome] Powell’s requirement of ‘decent’ and ensure that the existing schedule remains intact,” said Ian Williams, strategist at U.K. broker Peel Hunt.

He added that the third-quarter earnings season will be even more crucial in supporting valuations as yields rise. Major U.S. banks including JPMorgan Chase JPM, -0.41%, Bank of America BAC, -0.16% and Citigroup C, -0.29% are due to report results this week.

On the public-health side, Merck & Co. MRK, -0.44% submitted an application to the U.S. Food and Drug Administration for emergency authorization of what would be the first pill-based treatment for the deadly illness after the company said data from a Phase 3 trial of the treatment, molnupiravir, the oral antiviral medicine, reduced the risk of hospitalization or death in adults at risk from severe COVID-19 by 50%. 

Which companies were in focus?

  • Shares of Southwest Airlines Co. LUV, 1.30% rose 0.3% on Monday, even after the airline canceled hundreds of flights over the weekend, a move it blamed on weather and air-traffic control issues.
  • Domino’s Pizza Inc. DPZ, 0.42% announced the launch of Oven-Baked Dips on Monday, a side that’s meant to be eaten with the company’s Bread Twists. Shares rose less than 0.1%
  • Starbucks Corp. SBUX, 0.63%  shares rose almost 1%. It was upgraded to buy from hold at Deutsche Bank, with analysts anticipating growth in China for a long time to come. 
  • KKR & Co. Inc. KKR on Monday named Joe Bae and Scott Nuttall as co-CEOs of the 45-year-old private-equity firm, effective immediately. Founders Henry Kravis and George Roberts will remain involved with the firm as executive co-chairmen. Its shares fell 1.3%
  • Exxon Mobil XOM said Monday it will build its first large-scale plastic waste recycling facility in Baytown, Texas, to go into operation at the end of 2022. Its shares were unchanged.

How did other markets fare?

  • The ICE U.S. Dollar Index DXY, 0.16%, a measure of the currency against a basket of six major rivals, rose 0.3%.
  • Oil futures continued to surge, with the U.S. benchmark CL00, -0.09% settling above $80 a barrel for the first time since 2014. Gold futures GC00, 0.30% lost 0.1% to settle at $1,755.70 per ounce.
  • The Stoxx Europe 600 SXXP, -0.07% closed less than 0.1% higher, while London’s FTSE 100 UKX, -0.23% finished 0.7% higher.
  • The Shanghai Composite SHCOMP, -1.25% ended fractionally lower, while the Hang Seng Index HSI, -1.43% rose 2% in Hong Kong and Japan’s Nikkei 225 NIK, -0.94% gained 1.6%.
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