U.S. Stocks Decline With Oil Prices
19 January 2017 - 2:13AM
Dow Jones News
By Jon Sindreu
U.S. stocks fell as energy shares declined with the price of oil
and several large banks reported mixed earnings results.
The Dow Jones Industrial Average dropped 74 points, or 0.4%, to
19753 shortly after the opening bell. The S&P 500 declined 0.2%
and the Nasdaq Composite slipped less than 0.1%.
Goldman Sachs slipped 1.3%, even after the U.S. investment bank
reported stronger-than-expected profits. Shares had surged in the
wake of the election, and some analysts had speculated ahead of the
earnings report that strong results were already priced in.
Citigroup dropped 1.6% as the bank's revenue missed forecasts.
Bank earnings will be key to determining whether the U.S. stock
market is overvalued after the recent rally, analysts say.
Financial shares have propelled a postelection rally in stocks that
has carried indexes to new highs and the Dow Jones Industrial
Average within reach of 20000.
The Stoxx Europe 600 dropped 0.2% after remaining mostly
unchanged in early European trade. The biggest loser was the media
sector, which was sandbagged by Pearson's 29% drop, after the
London-based publisher warned of lower future dividends on the back
of weaker profit expectations.
Despite Pearson's drag, the FTSE 100 gained 0.2%. Asian shares
were mixed, with the Japanese Nikkei closing 0.4% higher.
Financial markets have struck a cautious tone ahead of Mr. Trump
taking office Friday, with investors appearing to have some second
thoughts about the risk-driven trades that have dominated since the
U.S. election on Nov. 8. While Mr. Trump's rhetoric against free
trade has long scared many analysts, markets initially focused on
his plans to slash taxes and regulations and boost infrastructure
spending.
Investors are now waiting for further clarity on such policies,
as well as corporate earnings, to decide whether growth and
inflation will come through, or whether markets got ahead of
themselves after the election.
"A lot of the indicators we follow are now pointing at the
market being overstretched," said Andrew Pease, global head of
strategy at London-based Russell Investments. "The U.S. economy's
fine, but markets have fully priced that in already."
The pound fell 0.9% against the U.S. dollar to $1.2285 after
Tuesday's 3% surge, the biggest daily rise in eight years. Sterling
was bolstered by U.K. Prime Minister Theresa May pledging to
subject the final Brexit deal to a parliamentary vote.
Nevertheless, many analysts said Mrs. May's announcement that
Britain is set to leave the European single market will end up
weighing on sterling at the first sign of weak economic data.
"Enjoy the party, but make sure you dance close to the door,"
said Antje Praefcke, an analyst at German lender Commerzbank
AG.
The WSJ Dollar Index, which tracks the currency against a basket
of 16 others, rose 0.5%. On Tuesday, it hit a one-month low after
Mr. Trump described the currency as "too strong" in an interview
with The Wall Street Journal.
The dollar's gains came as Federal Reserve Bank of San Francisco
President John Williams argued that gradual interest-rate increases
would leave the economy unharmed.
Bond yields in the U.S. and Europe rose to reflect investors'
belief that monetary policy is unlikely to become much looser.
After falling to 2.327% on Tuesday, the lowest closing since late
November, yields on 10-year Treasurys recovered to 2.375%,
according to Tradeweb.
Haven assets, which had been propped up as investors became
jittery ahead of Mr. Trump's inauguration, also changed direction.
Gold was broadly flat Wednesday and the Japanese yen retreated
against all major currencies.
Traders will closely monitor Wednesday evening's speech by Fed
Chairwoman Janet Yellen to gauge whether interest rates are likely
to rise at a faster or slower pace than they are currently
expecting. Further signs of tighter-than-expected policy in the
U.S. could depress Treasurys again, boosting the dollar.
"Markets have traveled on hope, now they are going to have to
deal with the facts," said Neil Dwane, global strategist at Allianz
Global Investors.
Write to Jon Sindreu at jon.sindreu@wsj.com
(END) Dow Jones Newswires
January 18, 2017 09:58 ET (14:58 GMT)
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