NEW YORK: Global stocks kicked off the week in lackluster fashion on Monday, with US equities retreating from records ahead of a Federal Reserve meeting and a deluge of major earnings reports.
All three major US indices fell in one of the few down days in 2018. Stock bourses elsewhere were also under pressure, with Paris and Frankfurt edging lower, Tokyo flat and London eking out a modest gain.
Earnings reports thus far have largely bested expectations and analysts have also been heartened by the high proportion of companies that have reported higher revenues than expected, suggesting profits will continue to rise in the coming quarters, said Nicholas Colas of DataTrek Research.
But after a wave of Wall Street records in the first month of 2018, investors are nervous that stocks “may be priced for perfection” heading into the busiest stretch of earnings season, said Art Hogan, chief market strategist at Wunderlich Securities.
This week’s earnings calendar includes tech giants Amazon, Apple and Facebook as well as traditional blue chip companies such as Boeing, ExxonMobil and McDonald’s.
Worries about aggressive moves by the Fed to tighten monetary policy are also weighing on stocks, Hogan said, citing rising US bond yields.
Higher bond yields could attract funds from equities and elevated interest rates can crimp corporate investment.
Higher yields also boosted the US dollar after volatility last week following remarks by US Treasury Secretary Steven Mnuchin supporting a weak dollar, a stance later amended by Mnuchin and explicitly opposed by President Donald Trump.
Foreign exchange traders said Wednesday’s Fed policy statement could alter the outlook for the US currency.
“While the Fed is not expected to adjust monetary policy at this time, its accompanying statement could reflect an improving US economic backdrop that is currently not being reflected in the value of the dollar,” said Omer Esiner of Commonwealth FX.
“A more upbeat tone to the Fed’s comments this week could move the needle on the market’s outlook for lending rates in 2018 from just under three quarter-point moves by the Fed to four. Such a scenario could help limit additional dollar losses going forward.”