While you were sleeping: Caution ahead of earnings

Jan 8 (BusinessDesk) – Wall Street retreated, pushing the Standard & Poor's 500 Index from its five-year high, as investors gear up for the fourth-quarter earnings season.

Profits at S&P 500 companies increased an average 2.9 percent in the fourth quarter, according to data compiled by Bloomberg. Excluding financial companies, earnings rose 0.5 percent.

Alcoa is the first company to report after the market closes on Tuesday. Shares were last down 1 percent.

In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.58 percent, while the Standard & Poor's 500 Index shed 0.59 percent, and the Nasdaq Composite Index slid 0.41 percent.

"We have a cautious market entering fourth-quarter earnings season," Peter Cardillo, chief market economist at Rockwell Global Capital in New York, told Reuters. "I think it's going to be a disappointing one this time around."

Others are more optimistic.

“I’m expecting better-than-anticipated earnings," Tom Wirth, who helps manage US$1.6 billion as senior investment officer for Chemung Canal Trust, in Elmira, New York, told Bloomberg News.

Investors who prefer to play it relatively safe can snap up US government debt this week. The US is set to auction US$32 billion in three-year notes on Tuesday, US$21 billion in 10-year debt on Wednesday, and US$13 billion in 30-year bonds on Thursday.

“The auctions will go well at these levels,” David Ader, head of US government-bond strategy at CRT Capital Group in Stamford, Connecticut, told Bloomberg. “We’re finding a footing in here. We’ll probably get more of a concession.”

The KBW Bank Index was last 0.4 percent lower. Ten US mortgage servicers including Citigroup, Bank of America and JPMorgan agreed to pay a combined US$8.5 billion under a deal that will end case-by-case reviews of foreclosures.

In a statement, Bank of America agreed to a US$11.7 billion package aimed at resolving most mortgage disputes with Fannie Mae.

Meanwhile, banks won a reprieve of four more years to meet international liquidity requirements from global central bank chiefs in an effort help propel the pace of economic recovery.

Shares of Amazon gained, last up 3 percent, after Morgan Stanley upgraded the world’s largest online retailer.

In Europe, the Stoxx 600 Index ended the day with a 0.4 percent decline from the previous close, which was its highest level in nearly two years. National benchmark stock indexes also fell in London, Frankfurt and Paris, easing 0.4 percent, 0.6 percent and 0.7 percent respectively.

The euro, however, managed to hold above its 50-day moving average against the greenback, a positive sign. The single currency was last up 0.2 percent to US$1.3101.

“The euro simply didn’t break much lower and stayed quite nicely around the US$1.30 level,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale in New York, told Bloomberg. “The temptation therefore is to try to push it a little bit higher.”

(BusinessDesk)

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