Stocks and index ETFs are dropping again on Tuesday as investors disregard strong corporate earnings and sell their equities.
The Dow Jones Industrial Average has declined 1% so far on Tuesday, while the S&P 500 has lost 1.07%. Meanwhile, the Nasdaq Composite led the drive lower, falling over 1.5%.
Major stock ETFs are falling on Tuesday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all trading in the red just after 11:40 AM EST.
Markets seemed uninspired by earnings this morning. Procter & Gamble shares failed to make gains even after disclosing quarterly earnings that smashed expectations thanks to domestic- and beauty-related sales increases.
Johnson & Johnson, which has been in the news lately due to the company’s blood-clotting issue with its vaccine, saw a modest 1% gain in its stock following the announcement of better-than-expected earnings and revenue, as well as $100 million in first-quarter sales of its coronavirus vaccine.
Some analysts are questioning whether such gains in earnings are renewable, or if they are more ephemeral due to the pandemic.
“The key to determining that will be the sustainability of these earnings increases,” said Tom Essaye, founder of Sevens Report. “Most of the factors that are producing these blowout earnings results are typically considered one offs.”
With stocks dropping on Tuesday, financial pundits are expressing concerns that positive earnings news has already been factored into stock prices, as major indexes and stock ETFs have been steadily scoring new highs. The Dow and S&P 500 closed at historic levels on Friday, with the Dow breaking the 34,000 barrier for the first time ever last week.
Cyclical travel and leisure stocks, including airlines and cruise lines slid, also dragged down ETFs like the U.S. Global Jets ETF (JETS), which fell 4.5%. Tech also declined, with key players like Microsoft, Amazon, and Apple, all trading in the red on Tuesday. Meanwhile, Netflix is scheduled to release its numbers after the closing bell.
“It’s really been an amazing tug-of-war between growth and value, cyclicals and defensives. Tech has outperformed phenomenally well over the last three to four weeks. But what we’re seeing … is a little bit of a move underneath the surface,” Andrew Smith of Delos Capital Advisors told Yahoo Finance on Monday.
“While the headline sectors really underperformed from the technology, consumer discretionary perspective, we have looked at industry groups, and we’ve seen tech hardware do well. We’ve seen software services continue to do well,” he added. “And we think that really is an economic function – that the momentum that we’ve seen in the V-shaped reflationary recovery is now set to pull back and wane a bit, and we’re going a little bit more growth-y [and]defensive, in the markets.”
Despite the pullback over the last couple of days, the first-quarter earnings season saw a robust start, which included 90% of the S&P 500 companies that have reported so far beating expectations by over 20% on average. This cresting of expectations represents three times the historical average, according to data from the Earnings Scout.
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