According to the news report by MarketWatch, the US stock market ended a steady week poorly. The benchmarks were all down on Friday as even better-than-expected earnings for the first quarter of the year failed to push up the stock market. Several banking companies pulled down the major indices to sour an otherwise strong week.
The end of this week simply highlighted the concerns of over-expectations from corporations and that valuations that are maybe too high. Geopolitical concerns also hand a hand in pulling markets down.
According to CNBC, Citigroup, JP Morgan Chase & Co and Wells Fargo reported their quarterly earnings. Each of the three major banking companies reported earnings that beat market expectations. However, while the stocks rose initially post the announcement of the results, they then sank. The strong results had already been factored in to the market performance, so they couldn’t pull up the stocks any further.
The market expectations for this earnings season’s results are very high. This is especially true for the financial sector. In fact, according to data from FactSet, the S&P 500’s earnings have been forecast to have grown by at least 17.1% in the last quarter. And the financial sector is expected to have shown a 24% increase in its earnings for the last quarter.
Bank of America, Morgan Stanley and Goldman Sachs are due to release their earnings results the coming week.
The Dow Jones Industrial Average dropped by 122.91 points, which is 0.5% to end the week at 24,360.14 points. The S&P 500 fell by 7.96 points, which is 0.3% to close the week at 2,656.30 points. The Nasdaq Composite Index dropped 30.60 points, which is 0.5% to close the week down at 7,106.65 points.
Despite their strong earnings reports, the finance companies were the worst performers in the market last week, and the sector itself fell by 1.6%. The biggest contributor to the declines was JP Morgan Chase & Co, which dropped by 2.7% after its earnings report was released. The bank was the worst performer on the Dow and pulled the index down by 20 points.
Currently, what is driving the markets is the hope of the strong earnings season. The market has been buffeted by the struggle in the tech sector, what with scandal that rocked Facebook as well as the pressure that Trump is putting on Amazon. Not to mention the escalation of tension between the US and China because of the trade tariffs imposed by the US government. There seem to be chances that if these tensions continues to rise, the fear in the market is that it could end up turning into a fully-fledged trade war between the world’s two largest economies.
The White House is planning a fresh set of tariffs in a bid to force China into making trade concessions. The government is also planning to put even more pressure by threatening to block Chinese tech investments in the country. The details of the next wave of tariffs are expected to be announced next week. Additionally, Trump has directed his staff to look into the possibility of joining the Trans-Pacific Partnership, which would put even more pressure on China.
China is now looking for allies – including in Europe – against the US.
The latest tensions in Syria, which could result in potential military action from the US, is also pulling the stock market down.
Another concern is that there is too high an expectation of the earnings season this time. With such high expectations, there is a strong possibility that results could end up disappointing.