The U.S. stock market was mixed on Monday, as investors braced for another busy week for corporate earnings and economic data. President Donald Trump’s forthcoming State of the Union address will up the ante on congressional lawmakers racing to get a deal in place by the end of the week.
MIXED START TO BUSY WEEK
The Dow Jones Industrial Average opened relatively flat on Monday, reflecting a tepid pre-market for Dow futures. The blue-chip index would later fall as much as 86 points before paring losses later in the session. At press time, the Dow 30 index was down 49 points, or 0.2%, at 25,014.21.
The broad S&P 500 Index reversed losses during the late-morning session and is currently trading 0.1% higher at 2,709.91. Energy and health care stocks declined sharply, offsetting sizable gains for information technology and communication services companies.
A strong performance for information technology shares propelled the Nasdaq Composite Index sharply higher.
TRUMP's STATE OF THE UNION ADDRESS
U.S. President Donald Trump will deliver his State of the Union address Tuesday as congressional lawmakers continue to debate a new budget. Last month, Trump and congressional leaders agreed on a temporary stopgap measure that would reopen the government for three weeks. That motion is set to expire Feb. 15, but lawmakers must complete their work by the end of the week to allow time for votes.
The president has vowed to declare a national emergency if Congress refuses to include $5.7 billion in border security funding in the next budget. By declaring a national emergency, Trump would be able to use funds from the Department of Defence towards a new steel barrier on the U.S.-Mexico border. In doing so, he would likely avoid another shutdown.
EARNINGS TO DETERIORATE: FACTSET
As Wall Street rounds out another positive earnings quarter, analysts are anticipating strong headwinds for American companies in 2019.
The S&P 500 is now projected to report a year-over-year decline in earnings for the March quarter, according to FactSet, a financial research firm. This is based on the so-called ‘bottom-up EPS estimate,’ which is an aggregation of the median per-share earnings estimates for all 500 companies. The bottom-up EPS estimate has fallen by 4.1% in January, which far exceeds the average decline for the past 20 quarters. In other words, the decline in January is bigger than the five-year, ten-year and 15-year averages.
The bottom-up EPS estimate declined the most for energy stocks (-22.5%) and information technology (-7.3%). Investors should, therefore, expect disappointing earnings reports for companies in both sectors during the Q1 earnings season, which begins in April.
Donald Trump image courtesy of Shutterstock. Chart via TradingView.