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US stocks slipped Monday as Wall Street braced for a slew of ugly corporate earnings reports this week as the coronavirus continues to wreck the economy.
The Dow Jones industrial average dropped more than 600 points before recovering to close down 328.60 points, or 1.4 percent, at 23,390.77 ahead of the start of corporate America’s first-quarter earnings season, when big companies are expected to reveal how hard the pandemic has hit them.
The S&P 500 and the Nasdaq Composite closed down 1 percent and 0.5 percent, respectively.
“People are just looking at the reality of a lousy earnings season coming, with presumably very negative comments,” said Lamar Villere, portfolio manager of the Villere Balanced Fund. “As long as we don’t have any real clarity on the end of the quarantine period, there’s nothing to get too excited about.”
The tumble followed big gains for all three major stock indexes last week fueled by optimism about the coronavirus crisis slowing and the Federal Reserve’s latest effort to shore up the virus-battered US economy. The Dow ended the week up 2,666.84 points, or 12.6 percent, on Thursday while the S&P climbed 12.1 percent and the Nasdaq rose 10.5 percent.
But experts expect big companies to report sizable financial hits for the first quarter as the pandemic brought much of the global economy to a screeching halt. Analysts predict S&P 500 firms’ earnings will have dropped 9 percent in the first quarter, down from a gain of 6.3 percent that was forecast at the start of the year.
Many companies have also scrapped financial targets in recent months and are unlikely to offer concrete guidance for the future because it’s still uncertain how long the virus crisis will keep much of the economy shut down, experts say.
“I don’t think there’s gonna be a lot of companies that are going to give you forward guidance, for two reasons: One is they really don’t know, but more importantly, it’s like a free hall pass in school,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “They could say ‘We’re going suspend guidance’ and get away with it. So I think they’re going to take advantage of that luxury.”
That means investors will likely turn to comments from corporate executives to gauge what the future holds, according to experts.
“What everyone’s gonna be looking for is, what are you seeing, how are things holding up, what are your customers saying?” Villere said.
Investors will also be looking for signs of resilience in the tech industry, which hasn’t suffered the same downturn in demand as others, according to Paulsen.
“If an energy company says it’s been bad, I think people are gonna yawn,” he said. “But you might see information coming from tech companies that the market takes into account — are they saying it’s free-fall for them, or are they really saying, ‘Hey, business is hanging in there’ ?”
Monday’s stock tumble came despite a historic agreement between Russia, Saudi Arabia and other oil producers to cut global oil production by 9.7 million barrels a day, effectively putting an end to an international price war.
West Texas Intermediate crude futures were off 0.4 percent at $22.68 on Monday after the deal was reached Sunday. The bump didn’t bleed into the stock market because the agreement was likely baked into last week’s rally, experts said.
With Post wires
