U.S. Stocks Fall as Alcoa Kicks Off Quarterly Earnings Season

  • Analysts forecast first-quarter profits to slide 10 percent
  • Raw-material companies lead gains, while biotech shares sink

What's Driving the Markets?

U.S. stocks fell, erasing gains in late afternoon trading, as investors braced for what is forecast to be the worst earnings season since the financial crisis.

The Standard & Poor’s 500 Index fell 0.3 percent to 2,041.99 at 4 p.m. in New York, wiping out an advance of as much as 0.8 percent, after the steepest decline last week in two months. Financial shares, the worst performing group in the S&P 500 in 2016, gained, with JPMorgan Chase & Co. and Goldman Sachs Group Inc. climbing. Signs of a pick-up in Chinese industrial demand pushed raw-material producers higher, while health-care and consumer-staples companies weighed on the index.

“The market lacks enough conviction to move stocks in any one direction for any one amount of time long enough for investors to sink their teeth into and rack up performance,” John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co., said by phone. “There is an increased amount of skepticism and concern, mostly around earnings season. It boils down to a market that has to climb a wall of worry and has to earn its gains.”

Alcoa Inc. unofficially kicked off the reporting season today, reporting after the close first-quarter profit of 7 cents a share, which exceeded analysts’ estimates by 5 cents. Sales were $4.95 billion, falling short of the $5.2 billion that was projected. Shares retreated 0.4 percent in late trading. 

As investors await fresh cues from corporate America, analysts are projecting first-quarter profits will contract 10 percent --  compared with calls for flat earnings growth at the start of the year -- including a 20 percent drop for banks. Still, for the first time in eight months, the pace at which they are cutting their estimates is slowing.

While S&P 500 companies have historically exceeded earnings forecasts, sales have fallen short of projections in the past two periods. JPMorgan Chase, Bank of America Corp. and Citigroup Inc. are all scheduled to release results this week.

Following a tumultuous start to the year in which the S&P 500 tumble as much as 11 percent, U.S. equities are now almost unchanged on optimism that central bank support will be enough to support growth. Still, reasons for additional gains have grown thin, with valuations far above their five-year average and the seven-year bull market weeks away from becoming the second-longest in history. 

After comments by Federal Reserve Chair Janet Yellen and minutes from the March meeting this month reaffirmed officials won’t rush to raise interest rates, traders are pricing in zero chances of a raise in April. The first month with at least even odds for a boost has been pushed to February 2017.

Among stocks moving on corporate news, Chesapeake Energy Corp. jumped 20 percent after saying it has amended a $4 billion secured revolving credit facility agreement with its bank syndicate group that matures in 2019.

Yahoo! Inc. added 1.1 percent after a person familiar with the matter said the publisher of Britain’s Daily Mail newspaper is interested in buying the company’s media and news properties. Daily Mail has spoken with a half dozen U.S.-based private-equity firms and a bid would only be made in conjunction with a partner, according to the report.

Biotechnology companies slumped, with the Nasdaq Biotechnology Index dropping a third day. Endo International Plc sank 8 percent, while Insys Therapeutics Inc. plunged 19 percent. The latter posted preliminary revenue from its Subsys drug that trailed estimates, saying scrutiny around opioid addiction may have caused reluctance by health-care providers in writing prescriptions.

Hertz Global Holdings Inc., a popular hedge-fund holding, slid 11 percent after saying U.S. car rental revenue in 2016 will be flat to down by 1.5 percent, after previously projecting an increase of at least 1.5 percent. Avis Budget Group Inc. also declined, losing 8.1 percent.

Under Armour Inc.’s Class A shares sank 5.5 percent after Morgan Stanley cut its price target on the retailer to $32 a share, or 27 percent below the stock’s close on Friday. The bank said revenue growth, especially in women’s, has slowed, which will lead to a future quarterly sales miss.

National Oilwell Varco Inc. tumbled 6.2 percent after reporting first-quarter sales dropped by about 20 percent to $2.16 billion from the prior quarter. The preliminary figure also fell short of analysts’ estimates, which called for revenue of $2.38 billion.

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