U.S. equities and stock exchange traded funds retreated Thursday ahead of the start of earnings report from some of the largest banks of Wall Street.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were 0.2% lower Thursday.
The financial sector was one of the worst performing areas of the market, with the Financial Select Sector SPDR (NYSEArca: XLF) down 0.9% Thursday.
Market observers argued that a lack of clarity around President-Elect Donald Trump’s policies disappointed investors who hopped for details on proposed plans to reduce taxes, raise fiscal spending and cut back regulations during his Wednesday press conference, reports Riva Gold for the Wall Street Journal.
“When we start debating these issues and people come out either for or against them, you’ll see moves and gyrations in stock prices and a lot of noise,” Peter Stournaras, portfolio manager of the BlackRock Large Cap Series Funds, told the Wall Street Journal. “At the end of the day, if you look at the broad drivers of the economy, I think those are more positive.”
Banks led Thursday’s weakness as traders grew tired of speculating on potential positive results from a new administration that will bolster growth and profits. Investors are now waiting on improved fundamental factors and any strengthening fourth quarter results in the upcoming earnings season.
Major banks including J.P. Morgan (NYSE: JPM), Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC) are expected to report earnings Friday. Several analysts argued that earnings projects are elevated for banks than in several quarters, making it harder for them to beat expectations.
Nevertheless, observers believe U.S. companies to reveal improved earnings as they gain momentum built upon strengthening third quarter results.
“If the global economy is doing better, and the U.S. economy is doing better, we could see meaningful upside on earnings surprises,” Willie Delwiche, investment strategist at Robert W. Baird & Co., told the WSJ.
Nevertheless, traders are still hedging their bets. For example, the recently launched Direxion Daily S&P 500 Bear 1x Shares ETF (NYSEArca: SPDN), which take a simple inverse or -100% daily performance of the S&P 500 index, is experiencing greater activity.
“We are getting more creates in the S&P 500 inverse ETF as we witness more moves in hedging,” Andy O’Rourke, Managing Director and Chief Marketing Officer, told ETF Trends in a call.
For more information on the markets, visit our S&P 500 category.