By Alex Veiga and Damian J. Troise
Stocks headed lower on Wall Street in early afternoon trading Monday as investors braced for a sobering first look this week at how the coronavirus pandemic has hurt company earnings.
The pullback followed news over the weekend that OPEC, Russia and other oil producing nations have agreed to cut output in a bid to stem a slide in crude prices following a collapse in demand due to the outbreak.
The S&P 500 was down 1.8% as of 2:27 p.m. Eastern time. It surged 12% last week, its best week since 1974. The Dow Jones Industrial Average was down 483 points, or 2.1%, to 23,226. The Nasdaq fell 0.5%. European markets were closed for a holiday, and Asian markets ended mostly lower.
Financial, health care, industrial and technology stocks bore the brunt of the selling. Bond prices fell. The yield on the 10-year Treasury to 0.73% from 0.72% late Thursday. U.S. markets were closed last Friday for the Good Friday holiday.
Another big infusion of economic support by the Federal Reserve and cautious optimism that the outbreak has begun to level off in some of the worst-hit areas helped spur last week’s big rally. This week, stocks could be in for more volatility as companies report results for the first quarter, though analysts will be focused primarily on what management teams have to say about what the rest of the year looks like.
Details may be hard to come by, as many companies have ceased giving earnings forecasts because of the uncertainty over when the areas of the economy that have all but shut down to stem the spread of the outbreak will open up again.
“The companies don't know what demand is going to be over the next three months or over the next six months," said Willie Delwiche, investment strategist at Baird.
Several major banks, including JPMorgan Chase, Wells Fargo and Bank of America, and big companies, including UnitedHealth Group, Johnson & Johnson and Rite Aid, are on deck to report results this week.
Analysts predict that earnings for all the companies in the S&P 500 will be down 9% in the first quarter from a year earlier, according to FactSet. That would be the biggest annual decline in earnings for the index since the third quarter of 2009 when earnings slumped nearly 16%.
“Our view is its one big write-off year,” said Keith Lerner, chief market strategist at SunTrust Advisory Services. “The market is going to start thinking more about 2021, 2022. On the other side of this, what does that business look like?”
The closure of businesses and mandates for people to stay home have forced a record number of Americans out of work and raised the possibility that many businesses could end up bankrupt. That has many investors anticipating what may be the worst recession since the Great Depression.
Investors have been focused on the trajectory of the coronavirus for clues as to how pronounced the economic fallout will be. Last week, signs that the outbreak was maybe reaching a plateau in New York and other hard-hit parts of the world helped lift stocks, but the overall data show the number of new cases continues to increase.
There are more than 1.86 million confirmed cases worldwide, led by the United States with more than 557,000, according to a tally by Johns Hopkins University.
Traders are trying to gauge when shutdowns in many countries might ease now that the number of deaths and new cases is falling or leveling off in some of the hardest-hit regions.
Comments by Dr. Anthony Fauci, the top infectious disease expert in the U.S., have raised hopes. He has said some parts of the U.S. might be able to reopen as early as next month while warning that much remains uncertain.
China has begun, cautiously, to reopen activity in regions such as Wuhan and surrounding Hubei province that were shut down during the worst of its outbreak.
After last week’s big move up, stocks are likely moving into a trading range reflecting a tug of war between investors' hopes for a recovery and concerns about the extent of the damage to the economy. Quick actions by the Fed and the $2 trillion economic aid package from the government have eased some of investors' concerns.
That optimism helped push the S&P 500 up 5.9% so far this month, though it's still down 19% from the record high it reached Feb. 19.
Oil prices rose 1% following the decision by OPEC and other oil producers over the weekend to cut production by nearly 10 million barrels a day, or a tenth of global supply, beginning May 1.
Analysts said the cuts were not enough to make up for the void in demand due to business and travel shutdowns due to the coronavirus. But the deal at least helped resolve a price war that took U.S. crude to near $20 per barrel, pummeling U.S. oil and gas producers.
U.S. benchmark crude initially jumped more than $1 but then lost ground. It was down 8 cents at $22.68 a barrel. It fell $2.33, or 9.3%, to $22.76 a barrel on Thursday, before the Good Friday holiday.
Brent, the international standard, rose 43 cents to $31.91 a barrel.