Dow Futures Plunge as Warren Buffett, Corporate Earnings Spook Markets

May 3, 2020 11:36 PM UTC
Dow futures sold off sharply Sunday night as investors reacted to dismal corporate earnings and a bleak warning from Berkshire Hathaway's Warren Buffett.
  • Dow Jones futures declined by as much as 362 points Sunday night.
  • Berkshire Hathaway’s annual shareholder meeting has cast a dark shadow over the equities market.
  • Meanwhile, U.S. corporate earnings are heading for their biggest decline since the financial crisis.

Futures on the Dow and broader U.S. stock market declined sharply Sunday evening, setting the stage for a rough start to the week following a grim message from Warren Buffett’s Berkshire Hathaway.

Dow, S&P 500, Nasdaq Futures Tumble

Futures on all three major U.S. stock indexes traded sharply lower Sunday evening. Contracts on the Dow Jones Industrial Average declined by as much as 362 points or 1.5%. S&P 500 and Nasdaq 100 futures were down 1.4% and 1.3%, respectively.

Dow futures point to a volatile start to the week on Monday. | Chart: Yahoo Finance

Equity markets finished lower last week, mere days after completing their biggest monthly rally in 33 years, as a new flare-up in U.S.-China trade relations put investors on high alert.

Warren Buffett Sets the Stage for Disastrous Week

The brisk futures market selloff comes on the heels of Berkshire Hathaway’s annual shareholder meeting, where investing tycoon Warren Buffett signaled that the worst of the equities downturn might not be over.

Not only did Buffett refuse to buy the March dip, but he also unloaded the company’s entire stake in four U.S. airlines–at a considerable loss, too.

He said:

Our airline position was a mistake… Berkshire is worth less today than if I hadn’t made that decision.

The S&P 500’s airline industry–a component of the Industrials sector–plunged 7.7% on Friday, far worse than the broader market. Berkshire’s latest revelation could send this critical component even lower next week.

Airlines plunged 7.7% on Friday compared with 3% for the overall Industrials sector. Over the past 12 months, airlines are down a whopping 58.4%. | Image: Fidelity

Dismal Earnings Quarter Continues

The stock market’s most considerable recovery since 1987 may be doomed to failure in light of a grim earnings season for Corporate America.

First-quarter earnings are set for their biggest decline since late 2009 because of the coronavirus pandemic. The situation will probably get worse in quarter two as the full impact of a nationwide lockdown becomes known.

Last week, the Department of Commerce said the economy contracted 4.8% annually in the first quarter, substantially worse than expected. Revised GDP numbers are expected later this month.

S&P 500 companies have posted a blended earnings decline of 15.8% in the first quarter, based on 24% of companies to have reported through April 24. So far, that’s much worse than the 6.8% annual decline analysts had expected.

Hundreds of U.S. companies will report earnings this week, including Walt Disney (NYSE:DIS), Occidental Petroleum (NYSE:OXY), Peloton Interactive (NASDAQ:PTON), General Motors (NYSE:GM), Carnival (NYSE:CCL), Square (NASDAQ:SQ), and T-Mobile (NASDAQ:TMUS).

Disclaimer: The author holds no investment position in the securities mentioned above.

Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: May 3, 2020 11:37 PM UTC

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Financial Editor of CCN.com, Sam Bourgi has spent the past decade focused on economics, markets, and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance, and Forbes. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com or at LinkedIn. Visit his Muck Rack profile here. Sam Bourgi is a Trusted Journalist.