U.S. markets and stock exchange traded funds continued to decline Tuesday as investors seek out signs to further justify the record-setting equity rally.
On Tuesday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 0.7%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was down 0.8%, and iShares Core S&P 500 ETF (NYSEArca: IVV) was 0.7% lower.
“All these company share prices are near or close to record highs and we are seeing a lot of people taking money off the table,” Michael Hewson, chief market analyst at CMC Markets, told the Wall Street Journal. “There is a general lack of impetus.”
Further weighing on sentiment, a spike in Covid-19 infection levels in some countries along with concerns over the vaccine rollout have dragged on the markets. The rising coronavirus cases weighed most heavily on travel stocks, notably airliners, on Tuesday.
“Rising COVID-19 cases around the world is a risk,” Paul Nolte, portfolio manager at Kingsview Asset Management, told Reuters. “Investors may be taking a little bit of profit as they recognize that a lot of ‘reopening trade’ may already be priced into the markets at this point.”
Meanwhile, investors have gone into the earnings season with high expectations, especially for economically sensitive sectors like banks and retailers.
“The only risk is that expectations across the board are so high, they are going to be very difficult to meet,” Seema Shah, chief strategist at Principal Global Investors, told the WSJ. “We are getting into territory—both with earnings and economic data—where it will be very difficult to have positive surprises.”
Looking ahead, investors are waiting on further signs of a broader economic recovery, which should help support cyclical sectors, which have been among the worst off during the coronavirus pandemic.
“When we see recovery in a lot of the manufacturing sector, for example, or in the energy sector, or even in the minings and commodities sector, a lot of that is predicated on anticipation of a more normalized economic environment that will look more like 2019 than 2020,” George Maris, co-head of equities, Americas, at Janus Henderson, told the WSJ.
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