U.S. equities and stock exchange traded funds tripped out of the gate, slipping on the first day of the second quarter as traders turned cautious in light of ongoing political risks, an upcoming earnings season and weak economic data.
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 down 0.5% Friday.
Investors continued to closely monitor the outlook for policy changes under President Donald Trump, including a potential tax overhaul, deregulation and infrastructure spending plan, which have all helped drive the equity rally since the elections but slowed in recent weeks on concerns over Trump’s ability to pass through these changes in light of the recent legislative setback.
“It doesn’t feel like the market is in panic, just that it is reassessing what the expectations were, and the expectations were we were going to get a lot of reforms quickly, and now it’s clear that we’re not,” Ken Polcari, director of the NYSE floor division at O’Neil Securities, told Reuters. “That, coupled with coming into earnings and tax season, Trump over the weekend trying to pound his chest over North Korea … that creates anxiety in the market.”
Trump is expected to attend a summit later this week with Chinese President Xi Jinping over trade talks where he may try to secure Beijing’s cooperation in pressuring North Korea.
Markets are “trying to adjust for the prospects of politics in Washington. That’s the major turbulence right now,” Brad McMillan, chief investment officer at Commonwealth Financial Network, told the Wall Street Journal.
Investors are also waiting on corporate reports in the upcoming earnings season, looking for strong results to justify the pricey valuations in the U.S. markets after the recent post-election rally. The S&P 500 is trading at about 18 times earnings estimates for the next 12 months, compared to its long-term average of 15.
U.S. markets were also weighed down after auto manufacturers revealed worse-than-expected U.S. sales for March, denting the bullish sentiment on economic growth.
“Sales are under forecast and there were a lot of incentives during the month,” Michelle Krebs, an analyst with Autotrader.com, told Bloomberg. “Before long, we will see more production cuts.”
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