U.S. stocks ended mostly lower on Tuesday, with the Dow Jones Industrial Average snapping a four-day winning streak after Goldman Sachs reported disappointing earnings results. The S&P 500 also closed lower, but the Nasdaq Composite managed to close in the green as investors judged whether the early 2021 rally has staying power. The market’s losses were broad-based, with eight of 11 S&P 500 sectors in the red.
The focus of investors has shifted from macroeconomic drivers like perceptions of the Federal Reserve’s monetary policy trajectory toward the fourth-quarter earnings reporting season. Reports from Morgan Stanley and Goldman Sachs this week highlighted the varying fortunes of the two investment banks, with Morgan Stanley’s results beating analyst expectations while Goldman Sachs’ results disappointed.
The fourth-quarter earnings season has been a tale of two markets, with some sectors doing well while others are struggling. For example, JPMorgan Chase & Co., Bank of America, Citigroup, and Wells Fargo reported impressive year-over-year revenue growth on Friday, while Goldman Sachs reported a sharp drop in profits.
The big banks seem to be benefiting from a strong U.S. economy, with loan growth and a healthy job market driving the sector’s performance. Furthermore, the effects of tax cuts enacted by the Trump administration have provided a boost to the banking sector.
Other sectors, however, are not faring as well. The energy sector, for example, has been hit by lower oil prices and increased costs. Likewise, retailers have been struggling due to a combination of weak consumer spending, competition from e-commerce, and higher costs.
Investors are on the lookout for signs of which sectors are performing well, and which ones are lagging behind. Kimberly Forrest, founder, and chief investment officer at Bokeh Capital Partners, said the fourth quarter earnings season is a story of spotting the winners and losers — not only the individual companies but also the economy’s sectors.
The coming weeks will be crucial in this regard, as earnings reports from a variety of sectors will be released. Investors will likely focus on underlying data such as revenue and earnings growth, cost structures, and the amount of cash available for investment.
By paying close attention to the fourth-quarter earnings reports, investors can gain valuable insights into the relative strength and weaknesses of different sectors and individual companies. This information can then be used to make more informed decisions about where to allocate capital……
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