It’s earnings season and although initial reporting saw the big banks performing above expectations, this week’s reports have failed to impress.
After steadily slipping on Monday and Tuesday, the Dow Jones fell 606 points on Wednesday, after seeing Caterpillar, 3M and Harley Davidson all tumble. The Nasdaq meanwhile lost 4.4% and the S&P 500 3.1%.
So far, this has been the first quarter since Q4 2014 that more companies have missed their earnings-per-share projections than have beat them.
Thursday saw a slight rebound, with all three composites making slight gains, albeit nowhere near enough to recover the losses made in the first half of the week.
This week’s drop is also a reflection of the uncertainty surrounding trade policies, which is taking its toll on the supply chain. Trade talks between the US and China remain unpredictable with Chinese government leaders most recently saying they do not fear a trade war with the US.
China did well to lift its stocks on Monday with Shanghai Composite gaining nearly 5% – its best day in three years – although it lost a portion of the gains on Tuesday. Its promise to provide stimulus to stabilise its economy could help markets look beyond the strong anti-trade rhetoric.
Emerging markets have also been hit particularly hard as investors become increasingly cautious.
Analysts now expect the upcoming US midterm elections to have an impact on stocks. Investors are cautious as a potentially divided congress could increase market volatility and diminish the chance of a Q4 rally.
Fiscal policy and foreign relations also hang in the balance.
Across the pond, it’s still early days for the European earnings season but so far company updates have somewhat disappointed.
The Euro Stoxx 50 fell more than 1.2% this week after European stocks slumped to their lowest point in almost two years.
It’s not all bad news though, as the technology sector had a good week with Amazon and Alphabet shares rising on Monday.
These gains limited losses on the S&P 500, which has so far lost 8.9% this month, and helped to lift the Nasdaq, which is down 11.7%.
On the Dow, both McDonalds and Verizon were up following earnings.
Tech companies will be looking to display strength, as about 160 S&P companies will report their third-quarter earnings this week with Facebook’s release expected on 30 October.
In the meantime, the recent stock market dip has triggered investors to look elsewhere with more moving to gold and US treasury bonds than ever, despite strength in the dollar.
Overall, as the market digests this week’s slew of earnings, economic pressures and political developments continue to trigger caution in investors.