U.S. Stock ETFs Pullback as Investors Brace for Weak Earnings

U.S. markets and stock ETFs slipped Monday as traders anticipate a poor corporate earnings season after the coronavirus pandemic wreaked havoc on businesses.

On Monday, the Invesco QQQ Trust (NASDAQ: QQQ) was flat, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) fell 1.9%, and SPDR S&P 500 ETF (NYSEArca: SPY) dropped 1.6%.

“We think markets are probably not prepared for the weakness in the data and, probably, the duration of the weakness in the data,” Sameer Samana, senior global market strategist for Wells Fargo Investment Institute, told the Wall Street Journal.

JPMorgan Chase & Co (JPM) and Wells Fargo & Co (WFC) will kick off the earnings season on Tuesday, and analysts expect a rise in trading revenue to help offset declines in other businesses and a gloomy outlook for the rest of the year, Reuters reports.

The markets anticipate S&P 500 company earnings to decline 10.2% in the first quarter, compared to the previous January 1 forecast of a 6.3% rise before the coronavirus or COVID-19 outbreak caused broad lockdowns that disrupted business activity and triggered furloughs.

“This week will be somewhat of an inkblot test,” Mike Loewengart, managing director of investment strategy at E*TRADE Financial Corp, told Reuters. “There are multiple ways to read the state of play as earnings roll out, is the downturn fully priced in or is there cause for more downward pressure?”

The S&P 500 is back in a bull market after recovering about 24% since dipping to a three-year low in March. The aggressive U.S. monetary and fiscal measures, along with early signs of a potential peak in infections, helped turn around markets. Nevertheless, equities remain about 19% off their mid-February record highs.

A top health official said that the outbreak could reach its U.S. peak this week, and the White House is considering when and how to restart the economy.

“More than likely, this will be a slow, rolling re-opening of the economy and with the threat of new flare-ups of the virus, policymakers will likely be more cautious than courageous in reversing current guidelines,” Peter Cecchini, global chief market strategist at Cantor Fitzgerald, told Reuters.

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