Corporate earnings season sends stocks lower
U.S. stocks declined on January 8, as investors pushed these assets lower amid the beginning of the fourth-quarter earnings season.
The benchmark Standard & Poor’s 500 Index finished the day 0.3 percent lower at 1,457.15 as of 4 p.m. in New York. European stocks also lost value, as the Stoxx Europe 600 Index closed down 0.1 percent. The trading volume for the equities contained in this index was 45 percent more than the three-month average, according to Bloomberg.
"We're waiting for earnings to come out," John Manley, who contributes to the management of around $212 billion as chief equity strategist for Wells Fargo Advantage Funds in New York, told the media outlet in a telephone interview. "Valuations are far from excessive. Yet we've had a strong rally very quickly. Now the market is adjusting."
The Dow Jones Industrial Average also had a poor day, falling 55.44 points, or 0.41 percent, to end trading 13,328.85, MarketWatch reports. The companies that were the principal contributors to this decline were Verizon and Boeing.
The Chicago Board Options Exchange Volatility Index (VIX), which is the most frequently-used metric for quantifying fear, finished trading below a reading of 14, according to the news source. This resulted in the VIX closing lower for six trading sessions in a row.
Bloomberg reports that this measure dropped to 13.62 percent during the day, which was its lowest level since August. In addition, the VIX plunged 39 percent during the week ending January 4, which was its sharpest one-week decline on record.
Various market experts asserted that the downward movements in equities could be contributed to a lack of optimism, with Bob Doll, chief equity strategist at Nuveen Asset Management, predicting that sentiment would make some progress, according to CNBC.
"We're going to have some improvement about perceptions of growth—we need just a little bit of confidence," he stated. "I'm using the phrase: muddle-through economy and grind-higher equity market—it's not going to be a gallop."
Data provided by Thomson Reuters predicts that the companies contained in the S&P 500 Index will report that their earnings rose at an average rate of 2.8 percent during the final quarter of the year, compared to the meager 0.1 percent they registered in the third quarter.
"[The earnings expectation] bar is so low that it's almost impossible not to beat it," Kenny Polcari, director at O'Neil Securities, told the news source. "The China story is what we're going to hear going forward."
This index of blue-chip stocks declined for the second consecutive day, after rising to its highest value since 2007 on the week that ended January 4. During that week, the index surged 2.5 percent as markets responded to news that Washington lawmakers reached a deal that would prevent the U.S. from going over the fiscal cliff.
If these government officials had not succeeded in doing so, it would have resulted in more than $600 billion in spending reductions and tax increases. Many market participants predicted that such an event would be very detrimental, and the Congressional Budget Office predicted that the fiscal challenges would push the United States into recession this year.
Since then, lawmakers have come to focus on pending fiscal challenges. In the next few months, the national debt will reach its limit of $16.2 trillion.
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