US stocks lost momentum after their biggest weekly rally since 1974 as investors braced for earnings reports that will set out how severe a blow the coronavirus outbreak has dealt to corporate America.
The S&P 500 closed down 1 per cent on Monday, shaving some of the 12 per cent gain it made last week when dramatic action by the Federal Reserve promised to shore up the economy and credit markets.
Among narrower market gauges, the tech-heavy Nasdaq gained 0.5 per cent on the day, while the Dow Jones Industrial Average fell 1.4 per cent.
“We have gotten a lot of the catalysts already to take markets higher,” said Brian Levitt, global market strategist at Invesco. “The problem now is that the next catalyst is going to come from the medical community rather than from the fiscal or monetary side.”
Gold, viewed as a safe haven, hit $1,717 a troy ounce, its highest level since 2012, up 1.2 per cent on the day.
Most European stock markets were closed for Easter Monday. Earlier, equity markets in Japan and South Korea opened the week with declines of more than 1.5 per cent. The CSI 300 index of the biggest listed companies in mainland China was down 0.4 per cent on Monday.
Market attention has begun to shift to the quarterly earnings season in the US, which will cover the period when the Covid-19 crisis was gathering pace in the first three months of 2020. It will also give analysts and investors an opportunity to query executives on their outlook for the coming months.
The country’s biggest lenders — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — are all set to publish their quarterly accounts this week. They are typically considered bellwethers for the broader economy because of their central position in the financial system.
In the past three months, Wall Street analysts have reduced their earnings per share estimates for 2020 for companies in the S&P 500 index by 15 per cent, according to FactSet data. Profits are now forecast to decline 8 per cent this year, which would mark the biggest fall since 2009 during the financial crisis.
David Kostin, chief US equities strategist at Goldman Sachs, said worse could be on the horizon. “Concerned investors have focused on the fact that the first-quarter earnings season will inevitably lead to a wave of downward revisions to analyst estimates,” he said.
A decline in forecast earnings would prove problematic, Mr Kostin said, because it means investors would need to accept more stretched price-to-earnings valuations, or stock prices would need to fall further. The S&P 500 is down around 14 per cent for the year, having recovered over recent weeks from a sharper fall.
Beyond earnings, Evan Brown, head of multi-asset strategy at UBS Asset Management, said the most important determinant of where markets were headed was how long it would take for the economy to reopen.
“We’ve had the downturn, we’ve had the policy response, and now it is all about when do we reopen and what does it look like.” However, “visibility on that is not clear”, he warned.
In commodities, oil prices zigzagged after Saudi Arabia and Russia reached a deal to make the biggest crude production cuts on record.
Brent crude was up 1.8 per cent at $32.06 a barrel, having earlier been as high as $33.99. The US benchmark, West Texas Intermediate, slipped 0.4 per cent to $22.68.
The choppy trade came after Opec+ producers agreed to remove almost 10m barrels a day from global supply. The cuts start from May but gradually diminish in size before expiring in April 2022.
“The problem is that Opec+ have taken too long to get to this point,” said Warren Patterson, head of commodities strategy at ING. “We are seeing significant levels of demand destruction right now,”
Mr Patterson added that there was “downside risk” to crude prices, given a global glut was likely to last throughout the second quarter, but that the deal could put a floor under Brent crude of about $25 a barrel.