Stock prices in the United States took a beating on the back of less than stellar earnings reports and a weakening of oil prices. Meanwhile, as the central banks of some key economies plan to make announcements after policy meetings, investors are waiting it out.
Investors wait out Central Bank policy meetings
Investors are playing it safe ahead of the meetings of the Fed as well as other central banks like Japan. For many, the tone continues to be set by the stance of central banks around the world. The US Federal Reserve is set to hold its policy meeting this week. In light of the drop in sales of new homes and the expectation of poor economic growth numbers, the Fed is likely to keep interest rates steady. The Bank of Japan’s policy update announcement is scheduled for Thursday. Analysts expect that rates are likely to drop further in the negative.
The US and German government yields have risen to their four and five week peaks respectively. The absence of earnings data that is consistently good plus the economic outlook have held investment firms back from taking the S&P 500 to new peaks.
End of the rally?
The equity market rally may be waning, after a three month period of positive movement. A similar pattern is playing out in the commodity market front as well. The S&P 500 saw a 0.18 percent drop, the DJI (Dow Jones Industrial Average) dropped 0.15 percent, and the Nasdaq Composite .IXIC dipped 0.21 percent. In Europe, the FTSEurofirst 300 index dropped 0.6 percent, and in Tokyo the Nikkei fell 0.8 percent.
Earnings and economic data disappoint
Poor results combined with falling energy prices pushed the stock market indices in the U.S. lower. Energy companies took a hit along with chemicals and metals companies. In addition earnings figures for healthcare and pharma player Perrigo were disappointing, contributing to the overall drop. Xerox too failed to deliver.
U.S. oil futures closed 2.49 percent down at USD 42.64. Reports surfaced of U.S. crude inventory being higher, resulting in the drop. However, the weaker dollar helped curtail the fallout from oil price decline. U.S. Treasury yields achieved a four week high in the bond market.
As many as a third of all companies listed on the S&P 500 are scheduled to share their earnings results this week. Expectations are low with many analysts sharing the view that earnings will fall again, for the third quarter in a row. Uncertainty surrounding the next move by the Fed has also resulted in subdued activity in the markets.