Stocks fall on concern about poor earnings

Traders work on the floor of the New York Stock Exchange. Brendan McDermid | Reuters

Stocks fell on Monday, led by losses in tech, as the U.S. corporate earnings season kicked off. Concerns over an economic slowdown in China also dampened sentiment to start off the week.

The Dow Jones Industrial Average pulled back 87 points as Merck and Apple lagged. The S&P 500 fell 0.5 percent, led by losses in the tech and utilities sectors. The Nasdaq Composite dropped 0.9 percent.

Shares of Facebook, Amazon, Apple, Netflix and Alphabet all traded down at least 1 percent. The S&P 500 tech sector also dropped 1 percent.

Corporate profits grew massively in the first three quarters of last year, expanding by at least 25 percent in those time periods. S&P 500 earnings are expected to have grown by 12.6 percent in the fourth quarter, according to Lindsey Bell, a strategist at CFRA Research.

Earnings growth will be harder to come by in 2019, however, said David Kostin, chief U.S. equity strategist at Goldman Sachs. In a note to clients this weekend, Kostin said 2019 earnings growth could be as low as 3 percent as the economy slows, the dollar rises in value and oil prices remain low.

The calendar fourth-quarter earnings season kicked off on Monday, with Citigroup reporting stronger-than-expected earnings. However, the bank also said its fixed-income trading revenue fell 21 percent.

The moves Monday come after the major indexes posted solid weekly gains last week. The Dow and S&P 500 also notched three-week winning streaks. Equities kicked off 2019 with strong gains, rebounding from a sell-off in December that briefly sent the S&P 500 into bear-market territory.

However, DataTrek Research co-founder Nicholas Colas is not sold the market is out of the woods yet.

“We are chalking up the S&P 500’s YTD gain of 3.6% primarily to the cessation of tax loss selling in the New Year,” Colas wrote in a note to clients. “That list of the biggest S&P 500 losers in 2018 we published last month is up an average of 9.5% YTD, a data point which supports this idea.”

“From now on, US stocks will have to earn further gains. Earnings season kicks off this week, the market’s first challenge. US/China trade will likely have to wait for Davos, which is 9 days away,” he added.

Investors were also worried after fresh data out on Monday showed December exports and imports dropping unexpectedly in China. These figures deepened concerns of a slowdown in the world’s second-largest economy.

—CNBC’s Silvia Amaro contributed to this report.

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