Dow Falls 200 Points, But Nasdaq Jumps Ahead Of Big-Tech Earnings As Investors Worry Over ‘Frothy’ Valuations

Topline

Though technology firms continue to rally, stocks are mixed ahead of a big week for market data, with blockbuster earnings set to roll in from the likes of Apple, Tesla and Facebook, but sky-high valuations could put a damper on sentiment.

Key Facts

Shortly after the market open, the Dow Jones Industrial Average was down 195 points, or 0.6%, and the S&P 500 was virtually flat while the tech-heavy Nasdaq jumped about 0.9%.

The morning’s biggest gainers are embattled firms rallying on news of secured financing, with Express, which is up 116% this morning, continuing a recent surge sparked by a $140 million deal earlier this month and AMC Entertainment soaring nearly 40% upon the announcement of $917 million in new debt-equity financing.

Among those heading up losses in the Dow, shares of Merck are down 1.2% after the drugmaker said it’s shutting down its Covid-19 vaccine candidate program due to “inferior” immune responses yielded during clinical trials.

Kicking off a busy week of earnings, shares of mining company Cleveland-Cliffs are up 5% following preannounced fourth-quarter revenues and income of $2.2 billion and about $285 million, respectively, well surpassing analyst expectations, while manufacturing company Kimberly Clark is up about 1.5% after reporting earnings that also beat expectations.

Cyclical stocks, meanwhile, are leading losses in the S&P, with energy firms TechnipFMC and Westrock down 4% and 3%, respectively, while the nation’s largest cruiseliner, Carnival, falls about 2.5%.

Stocks were also mixed globally, with Japan’s Nikkei 225 ending the day up 0.7%, while the United Kingdom’s FTSE 100 drops 1.2% and Germany’s DAX Index sheds 1.7%

CRUCIAL QUOTE 

“Stock markets off to a mixed start ahead of a fascinating week marked by major tech earnings and a Federal Reserve meeting,” Oanda Senior Market Analyst Craig Erlam said Monday morning. “And so far it’s tech that’s leading the way, with earnings to come from a number of heavyweights including Apple, Facebook, Tesla and Microsoft.” Erlam notes that it’s likely optimism over earnings driving the optimism in tech stocks–especially after a massive post-earnings rally from Netflix last week. 

KEY BACKGROUND

Despite rallying to new highs on Inauguration Day, stocks were largely flat to close out last week. Erlam notes that the risk for markets is that “after a bumper couple of months, investors may start to wonder whether stocks are looking a little frothy, especially against the backdrop of lockdowns in multiple countries and restrictions that are unlikely to be lifted in any considerable way for months.” 

WHAT TO WATCH FOR

About a quarter of the S&P reports earnings this week, Erlam says. Starbucks and Microsoft are due out Tuesday. Blue chips AT&T and Boeing report before the open on Wednesday, while Apple, Tesla and Facebook post after the close.

FURTHER READING

Dow Falls 200 Points, Stocks Slip Worldwide As Covid Variants Strain Sentiment Amid Unclear Stimulus Timing (Forbes)

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