U.S. stocks fell in volatile trading on Monday as investors prepared for a busy week of earnings featuring reports from the largest tech companies.
The S&P 500 slid 0.1% after trading higher earlier in the day, pressured by weakness in energy, materials and financials. The tech-heavy Nasdaq Composite also reversed lower after jumping more than 1% to an all-time high. The Dow Jones Industrial Average, less susceptible to changes in technology shares, shed more than 100 points.
This coming week, 13 Dow components and 111 S&P 500 companies are set to report earnings. Among the quarterly reports on deck include those from Apple, Microsoft, Netflix, Tesla, McDonald’s, Honeywell, Caterpillar and Boeing.
Apple shares gained 1.8% to about $140 a share before its quarterly report Wednesday after the bell. Tesla, which also reports Wednesday, was up 2.2%.
“The Street is anticipating robust results from Apple on Wednesday after the bell with Cupertino expected to handily beat Street estimates across the board,” wrote Dan Ives of Wedbush, who raised his 12-month price target on Monday to $175. “While the Street is forecasting roughly 220 million iPhone units [for 2021], we believe based on the current trajectory and in a bull case Cupertino has potential to sell north of 240 million units.”
Highly speculative action in stocks like GameStop was unnerving some investors, causing worry that parts of the market had detached from fundamentals and could cause the broader market to take a hit when the mania ends.
Shares of the brick-and-mortar video-game retailer soared more than 140% to top $150 at one point Monday as a slew of retail investors active in online chat rooms aimed to squeeze out short sellers. GameStop briefly turned negative in wild trading. Other heavily shorted names, including Bed Bath & Beyond, also jumped higher on Monday amid the buying frenzy.
Companies kicked off the earnings season on a strong note. Of the S&P 500 components that have already reported earnings, 73% have beaten on both sales and EPS, according to data from Bank of America. The firm said this is tracking similar to last quarter when the number of companies beating hit a record.
“You’re going to hear every day about what percent of companies beat expectations, but most companies didn’t give guidance because of Covid,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Wall Street is coming off a winning week amid the strength in the technology sector. The Dow and the S&P 500 gained 0.6% and 1.9%, respectively. The Nasdaq advanced 4.19% last week for its best week since November as shares of Big Tech names pushed the index to a record.
The move higher came as President Joe Biden tries to push through a $1.9 trillion stimulus program that many congressional Republicans oppose. The fiscal aid includes direct checks to millions of Americans, aid to state and local governments, funding for Covid vaccines and testing, a boost to the minimum wage and enhanced unemployment benefits, among other things.
The number of coronavirus cases continues to tick up in the U.S. and abroad, but many economists are forecasting a return to growth later this year.
“We continue to expect that a reduction in virus risk due to mass vaccination coupled with fiscal support for consumer spending will lead to a mid-year consumption boom and very strong growth in 2021,” Jan Hatzius, chief economist at Goldman Sachs, said in a note to clients over the weekend. “We currently forecast GDP growth of +6.6% on a full-year basis, 2½pp above consensus,” he added.
However, the firm noted that while risks like insufficient fiscal aid look now look less likely, other risks remain. Hatzius cited consumers remaining more cautious than expected as well as the evolution of a vaccine-resistant virus strain as potential future headwinds for the market.
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