Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Tuesday, 01/29” will be posted around 8:30am EDT, Tuesday.
THE GIST (“THE WHAT”)
As investors brace for the busiest week of the earnings season, disappointing earnings by NVIDIA Corp and Caterpillar Inc. eroded confidence at the open after these two blue-chip companies warned of slowing Chinese demand. Reports of rising U.S. crude supply dragged oil prices lower, weighing down on Energy stocks and further fueling the day’s declines.
Opening significantly lower at the open, the index maintained losses throughout the session as investors digested disappointing results from several companies across sectors. Bouncing off on registering the day’s low at 2624.06 (a little over a point shy of breaching the support level indicated by our models. Click here to read the full report), the index closed well off of the session’s lows at 2643.85, down 20.91 points and losing 0.78% over the previous session’s close.(please click here to check the hypothetical trading results of our trading plans published for today and earlier)
THE DETAILS (The “How & Why”):
Semiconductor stocks pulled back from their recent strong gains on concerns of slowing chips demand, dragging the broader Technology sector lower by 1.40%. NVIDIA Corp tumbled 13.82% to be the biggest drag on the index after the graphics chipmaker disappointed investors by slashing its fourth-quarter sales guidance, citing a softening of gaming chip sales in China. Its rival Advanced Micro Devices Inc. also fell 7.98% ahead of its earnings release this week.
Micron Technology Inc. and Activision Blizzard Inc. were the other sharp decliners within the technology sector, falling 2.26% and 2.22%. Apple Inc. also shed 0.93% ahead of its keenly awaited earnings results tomorrow after market close. Microsoft Corp and Amazon.com Inc. are also due to release their earnings this week and could drive price action within the sector.
Health Care was the next worst performing sector of the session, down 1.14%, led lower by a 4.22% decline in AbbVie Inc. after the biotech company missed earnings estimates and posted a weaker-than-expected guidance. Communication Services, Energy and Industrials were the other notable decliners of the session, down 1.14%, 1.03% and 1.00%, respectively.
Oil prices posted their worst decline in a month on reports that the U.S. added 10 oil rigs last week, renewing concerns of a global supply glut. Worries of a slowing demand due to slowing global economy further weighed down on prices. Oil prices, however, edged higher in after the market close following the U.S. Treasury’s announcement of sanctions on Venezuela’s state-owned oil firm, Petróleos de Venezuela SA in an attempt to increase financial pressure on Venezuela’s embattled President Nicolas Maduro.
The world’s largest heavy equipment maker, Caterpillar Inc. missed earnings estimates and underlined the rising manufacturing costs due to a stronger dollar, recent tariffs and heavy freight expenses. The bellwether also warned of slowing sales in China, hurting sentiment within the Industrial space.
Offsetting some of these declines were decent gains in Real Estate and Consumer Staples, up 0.96% and 0.46% respectively, benefiting from a decline in Treasury yields. The benchmark 10-year Treasury yield settled lower at 2.737% alongside an increase in demand for safe haven bonds amid a sell-off in equities, weighing down on the Financials sector.
The central bank will convene a two-day meeting on Tuesday. While the benchmark interest rates are expected to be left unchanged for now, investors will be paying close attention to the news conference later with Federal Reserve Chairman Jerome Powell, looking for clues on future policy. Trade news will also be a key focus later in the week with the U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He expected to restart negotiation talks.