By Sue Chang and Joseph Adinolfi, MarketWatch
Geopolitical tensions continue to burden equities
U.S. stocks retreated on Tuesday as a spate of tepid corporate earnings weighed on the broader market.
The Dow Jones Industrial Average dropped 144 points, or 0.7%, to 20,491, while the S&P 500 index fell 11 points, or 0.5%, to 2,337, as health-care and financial shares led the broad-market gauge lower. The Nasdaq Composite Index lost 24 points, or 0.4%, to 5,832.
A drop in shares of Goldman Sachs Group Inc. (GS) shaved more than 60 points off the Dow Jones Industrial Average (http://www.marketwatch.com/story/goldman-sachss-stock-drops-after-profit-and-revenue-misses-expectations-2017-04-18) after the investment bank's first-quarter results fell short of Wall Street expectations (http://www.marketwatch.com/story/goldman-sachss-stock-drops-after-profit-and-revenue-misses-expectations-2017-04-18). Shares of Johnson & Johnson (JNJ), another Dow component, slid after the company reported a drop in sales that offset stronger-than-expected profits. (http://www.marketwatch.com/story/johnson-johnsons-stock-falls-after-sales-miss-offset-profit-beat-and-raised-outlook-2017-04-18)The two companies were the biggest losers on the Dow.
Netflix Inc. (NFLX) shares turned lower, rattled by worries about the company's ability to attract and retain new users. The firm reported late Tuesday that it had added fewer subscribers than expected during the first quarter. (http://www.marketwatch.com/story/netflix-shares-fall-after-streaming-company-adds-fewer-subscribers-than-expected-in-q1-2017-04-17)
Overall, the tone of Tuesday's batch of corporate reports was generally weak, said Kim Forrest, senior analyst and portfolio manager at Fort Pitt Capital.
"The misses weren't huge, but they didn't quite make [the] analysts' mark," Forrest said.
Market participants have been looking to corporate earnings to justify a multimonth rally in equities that had taken stock benchmarks to records as recently as March 1, but has since stalled as doubts about valuations and concerns President Donald Trump's ability to quickly implement pro-growth policies has weighed on sentiment.
But the recent batch of tepid earnings notwithstanding, analysts still expect a strong quarter for corporate results.
"S&P 500 is expected to deliver strongest earnings growth in 22 quarters with momentum driven by recovering US and global economic growth, higher oil prices, and rising rates for financials compared to one year ago," said Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan Chase & Co., in a note to investors.
News out of the U.K. also pressured the U.S. market, according to Jack Ablin, chief investment officer at BMO Private Bank. as British Prime Minister Theresa May called for a snap general election (http://www.marketwatch.com/story/pound-rises-as-theresa-may-calls-for-new-uk-election-2017-04-18) that she said would be necessary to strengthen her hand during negotiations with the European Union as the country exits the European trade bloc.
Treasury Secretary Steven Mnuchin, meanwhile, told the Financial Times that the Trump administration hadn't taken the controversial border-adjusted tax off the table, which also helped ding stocks, according to Art Hogan, chief market strategist at Wunderlich Securities. The controversial provision would likely hurt import-dependent industries like retailers.
A recent batch of lackluster U.S. economic data, including a disappointing March jobs report (http://www.marketwatch.com/story/us-creates-98000-jobs-in-march-2017-04-07-81033623), have weighed on markets in recent weeks, as have mounting tensions between the U.S. and several of its geopolitical rivals. Karyn Cavanaugh, market strategist at Voya Investment Management said she expects shares to languish until a clearer picture of quarterly earnings emerges.
"The data, coupled with the geopolitical risk out there are making investors say 'show me what you've got'-- they want to see the earnings," Cavanaugh said.
Tensions between the U.S. and North Korea have escalated (http://www.marketwatch.com/story/north-korea-threatens-to-test-missiles-on-a-weekly-basis-bbc-2017-04-17) since the U.S. earlier this month ordered a Navy strike fleet to the waters off the Korean Peninsula. President Trump said Monday that the government in Pyongyang has "gotta behave." In response, a senior North Korean official said his country was "ready to react to any mode of war desired by the U.S."
Read:Jack Bogle on how to invest in a time of Trump: 'Be realistic' (http://www.marketwatch.com/story/jack-bogle-on-how-to-invest-in-a-time-of-trump-be-realistic-2017-04-13)
Earnings to watch: Bank of America Corp. (BAC) and UnitedHealth Group Inc.(UNH) were the two standouts of Tuesday's batch of earnings but Bank of America shares fell while UnitedHealth rose.
Bank earnings have been mixed so far this quarter, with strong reports by J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C) offset by weakness at Goldman and Wells Fargo & Co. (WFC)
Stock movers: Shares of United Continental Holdings Inc.(UAL) reversed gains to drop more than 3% after the United Airlines's parent company late Monday reported adjusted earnings that beat expectations (http://www.marketwatch.com/story/united-shares-higher-after-earnings-beat-ceo-calls-flight-3411-incident-humbling-2017-04-17).
United CEO Oscar Munoz said in the earnings statement that the incident of a passenger being forcibly removed from a plane was a "humbling experience."
Shares of Cardinal Health Inc. (CAH) tumbled 11% after the company struck a deal to buy part of Medtronic PLC's (MDT)patient monitoring and recovery unit. (https://www.wsj.com/articles/cardinal-healths-6-1-billion-deal-for-some-medtronic-operations-raises-debt-concerns-1492520887)
Post Holdings Inc.(POST) shares sank over 4% after the packaged food company said it is buying iconic U.K. breakfast brand Weetabix Food Co. for GBP1.4 billion ($1.76 billion) (http://www.marketwatch.com/story/post-holdings-agrees-to-buy-weetabix-in-176-billion-deal-2017-04-18).
Economic news and Fed speakers:Manufacturing output fell in March for the first time since last August, (http://www.marketwatch.com/story/industrial-output-rises-05-in-march-due-to-demand-for-heating-2017-04-18) according to a batch of industrial-production data released Tuesday. Also, a reading on housing starts, which measure the number of new-home construction projects that broke ground during a given month, was slightly weaker than expected in March.
Kansas City Federal Reserve President Esther George, speaking at Bard College Tuesday morning, said the central bank should begin reducing its balance sheet this year, echoing remarks by other Fed officials, including New York Fed President William Dudley.
Other markets: The British pound rallied after May's announcement about the snap election (http://www.marketwatch.com/story/pound-rises-as-theresa-may-calls-for-new-uk-election-2017-04-18).
Gold was trading flat while silver and other industrial metals were sharply lower.
A key gauge of the dollar's strength, the ICE U.S. Dollar Index slid after May's announcement as the euro and British pound rallied.
Stocks in Asia closed mixed (http://www.marketwatch.com/story/asian-markets-off-to-slow-start-after-holiday-weekend-2017-04-17), with Japan's Nikkei 225 index ending higher, but Chinese markets falling.
Oil prices (http://www.marketwatch.com/story/oil-steady-as-market-takes-wait-and-see-approach-2017-04-18) declined (http://www.marketwatch.com/story/oil-steady-as-market-takes-wait-and-see-approach-2017-04-18), adding to Monday's downdraft.
--Sara Sjolin contributed to this report.
(END) Dow Jones Newswires
April 18, 2017 12:35 ET (16:35 GMT)
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