US Stocks Fall Amid Weak Earnings, Rate Worries – Wall Street Journal

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  • U.S. stocks drop
  • Dow industrials down five straight days
  • Weak earnings lead S&P 500 lower

The Dow Jones Industrial Average fell a fifth consecutive day as the stock market’s key pillars of support—earnings and strong economic growth—showed signs of deteriorating.

Several lackluster earnings reports contributed to some of the biggest share declines in the S&P 500 at a time when investors have little conviction to buy stocks, analysts said. Stocks turned even lower after data showed that the pace of growth across much of the U.S. economy slowed in April.

The Dow shed more than 300 points and is on track for its second-lowest closing value of the year.

The string of daily declines appears to be taking its toll on investors, exacerbating the stock market’s weakness so far this year. Just 28% of individuals believe the stock market will be up six months from now, down from 37% the previous week and below the historical average of 39% going back to 1987, according to the American Association of Individual Investors’s most recent weekly survey.

The Dow industrials slumped 343 points, or 1.4%, to 23583 in recent trading. The blue-chip index is on track for its 10th decline in 12 sessions and is trading at its lowest level in a month. It is off more than 11% from January’s all-time high.

The S&P 500 declined 1.3%, putting it on pace for a second straight session of losses, while the Nasdaq Composite dropped 1.3%.

Money managers and analysts have pegged much of the stock market’s gains in 2017 and the first month of 2018 to steady economic expansion around the world and expectations that companies will report some of their best profit results in years.

But even though nearly 80% of the companies in the S&P 500 have topped earnings expectations through the first three months of the year, stocks haven’t responded with the same enthusiasm. Investors worry that the breakout earnings for many companies this quarter will be tough to follow in subsequent periods, a fear that was inflamed after top executives at Caterpillar said last week that results for the first three months could be a “high-water mark” for the year.

Besides that, the Federal Reserve’s plan to proceed with its pace of gradual rate increases has forced investors to re-evaluate their allocations between stocks and bonds, while a strengthening dollar has pressured big U.S. multinational companies in recent weeks. Trade concerns also continue to linger as the Trump administration has yet to complete implementation plans for its proposed tariffs.

“This is a complicated thing” for investors, said Barry Bannister, head of institutional equity strategy at Stifel Financial. “We have domestic and geopolitical uncertainty, plateauing global growth…This is good for stock pickers. It’s not good for indexing.”

Investors punished shares of Cardinal Health after the wholesale drugs supplier reported a lower-than-expected profit for the first three months of the year and lowered its outlook for the remainder of 2018 due to performance issues. Cardinal Health’s stock slid 18%.

The S&P 500’s other big decliner included American International Group, which reported first-quarter earnings that missed analysts’ expectations after the market’s close on Wednesday. Shares dropped 9.4% and helped drag the S&P 500’s financial sector down 2.1%.

Shares of Tesla also moved lower, falling 7.7%, after the electric car maker burned through cash faster than expected, while Spotify Technology declined 6.8% after its first earnings report as a publicly traded company fell short of analysts’ expectations.

A screen on the floor of the New York Stock Exchange showing the rate decision of the Federal Reserve on Wednesday.

A screen on the floor of the New York Stock Exchange showing the rate decision of the Federal Reserve on Wednesday.


Photo:

Richard Drew/Associated Press

Soon after the market opened on Thursday, the Institute for Supply Management on Thursday said its nonmanufacturing index—tracking a wide range of U.S. industries such as health care, finance, construction and agriculture—slipped to 56.8 in April from 58.8 in March and missed economists’ expectations.

While a reading above 50 indicates expansion, survey respondents expressed some concern regarding the uncertainty around tariffs and the effect on the cost of goods.

Investors and analysts also continued to focus on a statement from the Fed, which sent U.S. stocks lower late Wednesday.

The Fed said that it plans to continue raising rates gradually as inflation firms. Some analysts pointed to a combination of the Fed’s conviction in pushing up interest rates, its lack of concrete details on plans for 2018 and its moderate commentary on the strength of the economy as a trigger for short-term weakness in stocks.

“Protecting against inflation is one of the key things to do,” said Jeff Layman, chief investment officer of BKD Wealth Advisors, a financial advisory firm. “The higher interest rates go, the more difficult it is for the valuation of stocks, and we’re already at the higher end of a normal range.”

Elsewhere, the Stoxx Europe 600 fell 0.7%, while stocks in Hong Kong, South Korea, Taiwan and Singapore moved lower as well. Markets in Japan were closed for a four-day holiday weekend.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Riva Gold at riva.gold@wsj.com