U.S. equities fell Monday as Wall Street braced for big company earnings reports slated for later in the week which could signal how inflation is impacting businesses.
The Dow Jones Industrial Average shed 90 points, or 0.29%. The S&P 500 fell 0.9%, and the Nasdaq Composite dropped 1.7%.
Monday’s moves lower come as investors remain laser-focused on June inflation data and the start of corporate earnings season for clues into the health of corporate America. The findings could signal how inflation and surging prices are hitting profits.
“As commodity and other producer costs remain high, companies will be factoring in the extent to which those heightened prices can be passed on to consumers and, likewise, how to keep earnings vigorous amid economic, geopolitical and other key headwinds,” said Greg Bassuk, chief executive officer at AXS Investments said.
The season kicks off with reports from PepsiCo and Delta Air Lines scheduled for Tuesday and Wednesday, while banks JPMorgan Chase, Morgan Stanley, Wells Fargo and Citigroup will post earnings later in the week.
Jack Ablin, founding partner of Cresset Capital, expects companies to tamp down their forecasts as they grapple with rising prices, slowing growth and an aggressive Federal Reserve.
Casino stocks Wynn Resorts and Las Vegas Sands led Monday’s losses, falling 9% each on the back of worsening Covid trends in China including a week-long shutdown of casinos in Macau. Shanghai also detected its first case of the BA.5 subvariant.
“COVID headwinds aren’t just a Chinese phenomenon – cases are climbing globally, although the risk of lockdowns in the US and EU remains extremely low,” wrote Adam Crisafulli of Vital Knowledge.
Information technology and communication services slipped about 2%, led by beaten-up tech shares. Alphabet, Tesla and Netflix shed about 3% each. Boeing, Intel and Walt Disney fell more than 2%, dragging down the Dow.
Twitter shares fell 6% after Elon Musk terminated a deal worth $44 billion to buy the social media company. The billionaire took issue with the number of bots and fake accounts on the platform and said Twitter wasn’t being truthful about how authentic activity on the platform was. However, the company said it gave Musk the information he needed to assess the claims.
Meanwhile, the 2-year Treasury yield hovered above its 10-year counterpart, an inversion many see as a recession indicator. The 2-year rate on Monday traded at 3.08%, roughly 2 basis points above the 10-year.
Wall Street is coming off a mixed session in which the Dow and S&P 500 fell slightly, while the Nasdaq Composite rose for a fifth straight day. All of the major averages secured a winning week after a stronger-than-expected jobs report Friday showed that the economic downturn worrying investors has not yet arrived and added to positive sentiment.
The jobs report, while good for the economy, could embolden the Federal Reserve to continue its aggressive rate hikes in the coming months to fight persistently high inflation.
“While the markets ended in solid green for the week, investors should brace for continued volatility in July, with ongoing uncertainties looming with respect to inflation, Fed policy, recession concerns, the enduring Russia-Ukraine war, all as we also move into corporate earnings season,” said Bassuk.
Investors are also looking ahead to the release of June’s consumer price index on Wednesday. It is expected to show headline inflation, including food and energy, rising above May’s 8.6% level to 8.8%, according to Dow Jones estimates.