U.S. Stock Rally Grinds to a Halt as Disappointing Financial Results Offset Trade Optimism

The Dow and broader U.S. stock market traded slightly lower on Monday, as disappointing financial results from two of America’s largest banks offset growing optimism that a China trade deal was imminent.

Dow Edges Slightly Lower; S&P 500 Follows

All of Wall Street’s major indexes headed for minor losses in early-week trading. After falling 99 points, the Dow Jones Industrial Average settled down 27.53 points, or 0.1%, at 26,384.77.

The broad S&P 500 Index of large-cap stocks closed down 0.1% at 2,905.58. Losses were mainly concentrated in the financials, industrials and materials sectors. Despite the modest pullback, the S&P 500 remains on track to reach new all-time highs in the near future.

Meanwhile, the technology-focused Nasdaq Composite Index fell 0.1% to 7,976.01.

Earning Disappoint

Corporate earnings season was in full swing on Monday as Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) disclosed their first-quarter financial results.

Goldman’s first-quarter earnings declined sharply as its trading and underwriting businesses slowed. The bank’s profits fell 21% year-on-year to $2.25 billion, or $5.71 per share. Analysts had expected earnings to fall to $4.89 per share. Revenues plunged 13% to $8.81 billion compared with forecasts calling for $8.9 billion.

Citigroup’s earnings exceeded forecasts thanks to a large repurchase program in the first quarter. Per-share earnings reached $1.87 versus $1.80 expected. However, revenues fell 2% to $18.576 billion, which were below estimates.

Several of Wall Street’s major players are expected to report first-quarter results on Tuesday, including Bank of America Corp (BAC), BlackRock Inc. (BLK). Netflix Inc. (NFLX) and Dow blue-chip UnitedHealth Group Inc. (UNH).

Trade Deal Getting Closer

Treasury Secretary Steven Mnuchin told an IMF media briefing on Sunday that the United States and China are “making progress” in trade negotiations, echoing previous remarks about the likelihood of a new deal.

Just one day prior, Mnuchin said he was “hopeful” that both sides were approaching a final leg in the negotiations. According to Reuters, the Trump administration is looking to finalize a deal in the next month and is prepared to make some big concessions on Chinese industrial policy to get there. This includes watering down demands that China cut industrial subsidies that impede on international completion.

Both countries have been locked in a bitter tariff dispute for nine months as the Trump administration targeted China’s unfair trade practices. Trump is looking to finalize a trade deal with China before shifting his focus to the European Union. Last week, the president blasted the EU for subsidizing Airbus to the tune of $9 billion. The criticism triggered a sharp retreat in the U.S. stock market.

“The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products!” Trump tweeted last Tuesday. “The EU has taken advantage of the US on trade for many years. It will soon stop!”

Featured image courtesy of Shutterstock. Chart via Stockcharts.com.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi