Joy Wiltermuth and Andrea Riquier
U.S. stocks closed slightly lower Monday, starting a week that will include first-quarter earnings report from some of the largest banks, including JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -2.08% and Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS -1.59% .
Market participants also weighed inflation risks, a sharp rise in the U.S. deficit and comments from Federal Reserve Chairman Jerome Powell in a “60 Minutes” interview that aired on Sunday.
How did stock benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.74% slipped 55.20 points to close at 33,745.40, a decline of 0.2%.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.51% gave up less than a point to finish at 4,127.99.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.0008% fell 50.19 points, ending at 13,850.00, a loss of 0.4%.
On Friday , the S&P 500 closed out a 2.7% weekly gain, while the Dow rose 2% for the week and the Nasdaq Composite posted a 3.1% weekly rise. The S&P 500 and the Dow booked their third straight weekly gains, while the Nasdaq has climbed for two weeks in a row.
What drove the market?
Big banks this week are set to kick off first-quarter earnings season, likely providing a snapshot of the overall health of major U.S. corporations a year into the COVID crisis and perhaps providing insight into ongoing risks in financial markets.
“I think people will be listening to the bank announcements from the standpoint of assessing what other risks might be out there,” said John Carey, director of equity income U.S. at Amundi Pioneer, pointing to last month’s flameout of Archegos Capital Management, a highly leveraged family office that imploded, dealing stinging losses to several large investment banks.
“Investors will perk up their ears when they’re hearing what management has to say about risk control and loan exposures, especially in prime brokerage,” Carey told MarketWatch.
With stock indexes trading near record levels, Keith Lerner, chief market strategist for Truist Advisory Services, said another focus will be whether the recovery looks on pace to meet investor expectations. “A lot has been priced in, and the market is looking for earnings to confirm that that’s the correct move. The hurdle rate for positive surprises has moved up.”
Lerner thinks that the Fed will remain “supportive” and that, even if bond yields rise, the market should absorb the next leg higher, as long as it isn’t too steep, he said.
“We’ve had a very gradual but steady [and] low-volatility move to new highs,” Lerner said in an interview. “I still think the primary market trend is higher, but, as we head into earnings, I suspect we start trading a little more range-bound. When the primary trend is higher, you don’t want to worry about the hiccups.”
Some strategists fear, however, that stock valuations remain elevated despite uncertainties that include inflation, the success of the vaccination campaign globally and the U.S. tax regime.
Stocks mostly ended at record levels last week, and the Nasdaq Composite, after falling into correction territory in March — defined as a drop of at least 10% from a recent peak — stands less than 2% from its Feb. 12 all-time closing high. Gains for equity benchmarks have come despite concerns about the potential for out-of-control inflation and the possibility that President Joe Biden will raise the corporate tax rate to 28% from 21% to help fund his $2.4 trillion jobs and infrastructure proposal.
Last month as stimulus checks rolled out under the latest $1.9 trillion pandemic aid package, the U.S. budget deficit soared to $660 billion in March from February, the U.S. Treasury Department said Monday.