U.S. stocks came under pressure amid signals of a widening trade deficit with China and trepidation over the start of corporate earnings season.
The S&P 500 (^GSPC) fell 0.53%, or 13.65 points, as of market close. The Utilities sector led declines as PG&E (PCG), a natural gas and electric service provider, announced it was preparing to file for bankruptcy. The Dow (^DJI) declined 0.36%, or 86.11 points, while the Nasdaq (^IXIC) fell 0.94%, or 65.56 points.
New Chinese government data pointed to a burgeoning trade surplus with the U.S. even given the Trump administration’s tariffs on Chinese goods, which had been intended to try to rebalance the trade discrepancy. China’s surplus grew to $323.32 billion with the U.S. in 2018, a 17% increase over the year prior. Exports to the U.S. rose 11.3% for 2018, while imports from the U.S. crept higher by just 0.7%, according to data from China’s General Administration of Customers.
Meanwhile, investors are awaiting quarterly results from about three dozen S&P 500 companies this week, with big banks including JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS), as well as other major names including Delta Air Lines (DAL) and Netflix (NFLX) set to report.
Several major bellwether companies have already waved red flags to investors, signaling weaker results amid an enfeebled global economy. FedEx (FDX) in late 2018 said its international business was pressured in part due to a Chinese economy weakened by the trade dispute, while Apple (AAPL) earlier this month downwardly revised its revenue guidance for the holiday quarter, citing “economic deceleration, particularly in Greater China.” Goldman Sachs analysts downgraded shares of Starbucks (SBUX) last week, citing concerns about the Chinese economy that paralleled Apple’s forewarning.
Some consumer companies, however, have recently provided more upbeat reports ahead of their quarterly earnings results. Lululemon (LULU) on Monday upwardly revised its guidance for revenue and profit for its fiscal fourth quarter, citing strong “momentum” during the holiday season. Crocs (CROX) on Monday increased the upper band of its revenue guidance by about 4.4%, with company executives saying the casual footwear maker had one of its best fourth quarters in years. These outlooks contrasted with that of other retailers including Macy’s (M), which saw its shares tumble about 18% Friday after lowering its expectations for full-year earnings and comparative same-store sales following disappointing holiday season.
The mixed pre-results have set off some concern for S&P 500 earnings growth on the whole.
“Equity prices have tracked negative earnings revisions, but earnings season will represent an important litmus test for the near-term path of the S&P 500,” Goldman Sachs analysts wrote in a note published Sunday. “With no nascent signs of slowing negative revisions the strength of the 4Q results and management commentary around the outlook for 2019 will take on heightened importance for whether earnings estimates (and returns) stabilizing in the near term.”
The analysts noted that recent weakness in the macroeconomic landscape – including slowing domestic and international growth, weaker oil prices, lower bond yields, lower inflation and a slightly stronger dollar – and could lead to as much as $5 of potential downside to their 2019 S&P 500 earnings per share estimate of $173.
STOCKS: Citigroup reports disappointing fiscal fourth-quarter revenue
Citigroup (C), the first of the big banks to report earnings, missed Wall Street’s expectations for fiscal fourth-quarter revenue, which registered at $17.12 billion versus $17.55 billion expected. Adjusted earnings were $1.61 per share, exceeding analysts’ forecasts of $1.55, according to Bloomberg data. Fixed income revenues of $1.94 billion declined 21% over last year, which the bank said reflected a “challenging trading environment characterized by volatile market conditions and widening credit spreads, particularly in December.”
PG&E (PCG) said it is preparing to reorganize under Chapter 11 of the U.S. Bankruptcy Code in California later this month. The company said it “does not expect any impact to electric or natural gas services for its customers as a result of the Chapter 11 process.” The utility company reportedly faces potential liabilities of at least $30 billion in the wake of a series of wildfires that devastated California, and investigators are looking into whether PG&E equipment ignited the fires. The company also announced Sunday that CEO Geisha Williams will depart, with PG&E general counsel John Simon taking over as the company searches for a new chief executive.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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