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James Hyerczyk
Earnings Season
Earnings Season

U.S. equity markets settled lower across the board on Monday as investors tried to consolidate following last week’s rout. The sell-off was primarily driven by another steep break in the technology sector.

In the cash market, the benchmark S&P 500 Index settled at 2750.79, down 16.34 or -0.59%. The blue chip Dow Jones Industrial Average closed at 25250.55, down 89.44 or -0.35% and the tech-based NASDAQ Composite ended the session at 7430.63.

Apple, all component of all three major stock indexes settled more than 1.8 percent lower. Sellers were responding to a report from Goldman Sachs that said the tech giant’s earnings could fall short this year as demand in China slows.

Netflix, a piece of the NASDAQ Composite and S&P 500 Index, also declined by 1.8 percent. The selling was primarily driven by comments from Raymond James which slashed its price targets on the video-streaming giant.

Continuing to weigh on the technology sector were shares of chipmaker stocks. Some say that the groundwork for the current sell-off was fueled by recent weakness in this sector so it should be watched for signs of a turnaround. Often stocks that led the way down are the first to signal a turnaround. The VanEck Vectors Semiconductor ETF (SMH) declined 1.1 percent, led by a 4.5 percent decline in Nvidia.

Earnings News

Corporate earnings season has kicked off, prompting Goldman Sachs Chief U.S. Equity Strategist David Kostin to say it is time to buy into growth stocks as last week’s sell-off is largely lower. “We see limited further downside,” he said in a note. “Despite the recent sell-off, equity fundamentals are strong and we remain constructive on the path of the S&P 500.”

On Monday, Bank of America reported better-than-expected earnings and revenue. Nonetheless, its shares fell 1.9 percent. Although strong earnings have contributed greatly to the bull market, Monday’s price action only confirms that outside factors are contributing to the current stock market weakness. Furthermore, you have to remember that quarterly earnings actually represent stale data from activity before September 30. Rapidly rising interest rates, a current catalyst, represents now or the future. The stock market discounts future events so watch for news that has to do with future earnings. This puts more importance on guidance.

Later this week, traders will get a chance to react to earnings from Netflix, Morgan Stanley, Johnson & Johnson, Procter & Gamble and Honeywell. Investors will be keying in on Netflix, which releases its earnings report after the close on Tuesday because this stock is one of the bellwether FANGS.

According to FactSet, expectations for this earnings season are high. Its analysts expect third-quarter S&P 500 profits to have expanded by 19 percent on a year-over-year basis.

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