Stocks slip from record highs before U.S. bank earnings
NEW YORK/LONDON (Reuters) -The dollar slipped and a gauge of global equity markets slid from record highs on Monday as investors wait to see whether an expected jump in U.S. earnings will justify stock prices already trading at very high premiums.
U.S. government debt edged higher ahead of the Treasury Department’s auction of $96 billion in new three-year and 10-year notes, and before key data releases this week, including a reading on U.S. consumer price inflation and retail sales.
The dollar slipped toward a three-week low as Treasury yields held above recent lows, while oil prices rose on optimism over a rebound in the U.S. economy as coronavirus vaccinations accelerated.
MSCI’s benchmark for global equity markets fell 0.25% from Friday’s record high.
MSCI’s all-country world index’s price-to-earnings ratio is at its highest level since early 2010. The S&P 500’s P/E ratio on a forward 12-month basis is 23.5, a premium of more than 40% to its 20-year average, according to CFRA.
Traders want to see results and whether company guidance supports anticipation of a rebounding U.S. economy, amid caution ahead of the U.S. bond auction, said Fiona Cincotta, senior financial markets analyst at City Index, the retail division of StoneX Financial.
“There is some optimism,” Cincotta said of overall market sentiment. “Slightly more upbeat guidance from the big banks, that’s going to help,” she said.
JPMorgan Chase & Co, the largest U.S. bank by assets, reports earnings on Wednesday, as do Goldman Sachs Group Inc and Wells Fargo & Co. The S&P financials sector hit a record high on Monday before retreating in anticipation of bank results, which lead the U.S. earnings season.
On Wall Street, the Dow Jones Industrial Average fell 0.16%, the S&P 500 lost 0.15% and the Nasdaq Composite dropped 0.54%.
Share prices will likely rise should estimates continue to morph into better-than-expected results and guidance, said Sam Stovall, CFRA chief investment strategist.
Analysts expect profits for S&P 500 firms to show a 25% jump from a year earlier, according to Refinitiv IBES data. That would be the strongest performance for the quarter since 2018.
Optimism about vaccination programs and an ensuing rebound is driving stocks. Total market capitalization of global equities hit $90 trillion last week, according to Refinitiv data.
European shares eased from record highs as investors held off from making big bets before earnings season. Europe’s broad FTSEurofirst 300 index closed down 0.43%.
The UK’s more export-oriented FTSE 100 fell 0.3%, Germany’s DAX and France’s CAC 40 closed little changed, while Italy’s FTSE MIB gained 0.19%.
Earlier in Asia, Tokyo’s Nikkei edged down 0.77%, and South Korean stocks rose 0.12%.
India’s Nifty 50 index slid 2.4% as the country overtook Brazil with the second-highest number of COVID-19 cases globally.
Chinese blue chips lost 1.5% before the release of a series of economic data from China.
Shares in Alibaba Group Holding Ltd surged 7.4% on relief that China’s record 18 billion-yuan ($2.75 billion) fine on the e-commerce giant, which makes up more than 8% of the MSCI emerging markets index, was not more onerous.
China imposed a sweeping restructuring on Jack Ma’s Ant Group, the fintech conglomerate whose record $37 billion initial public offering was derailed by regulators in November. Alibaba is an affiliate of Ant Group.
U.S. growth and tech stocks saw a revival last week as U.S. 10-year Treasury yields retreated to 1.66%, from a 14-month top of 1.776%.
The 10-year U.S. Treasury note rose 0.7 basis point to 1.6728%.
“Low inflation and dovish central banks should limit the rise in bond yields during the recovery,” said Andrew Pease, global head of investment strategy at Russell Investments.
Data on Tuesday is expected to show U.S. inflation jumped in March. Retail sales data is expected to show a surge, perhaps with a double-digit gain, when a report is released on Thursday.
The dollar softened after the pullback in Treasury yields.
The dollar index fell 0.119%, with the euro up 0.11% to $1.1909. The Japanese yen strengthened 0.26% versus the greenback at 109.43 per dollar.
Spot gold prices fell 0.68% to $1,731.26 an ounce.
Brent crude futures rose $0.29 to $63.24 a barrel. U.S. crude futures gained $0.33 to $59.65 a barrel.
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