Stocks fell across the board Monday, as investors continued to digest the stronger-than-expected jobs report.
As of market close, the S&P 500 (^GSPC) was 14.46 points, or 0.48%, lower, while the Dow (^DJI) fell 115.98 points, or 0.43%. The tech-heavy Nasdaq (^IXIC) declined 63.41 points, or 0.78%.
Meanwhile, gold (GC=F) fell 0.32%, dragging down the precious metal to $1,395.60 per ounce, as investors flocked to safety. Crude oil (CL=F) sank 0.05% to $57.48 per barrel.
After hitting recording highs last week, stocks pulled back from those levels, as investors began to fear that the probability of a July rate cut had declined significantly following the jobs report. Now, investors will be shifting their attention to a couple of upcoming events — Powell’s testimony this week and second-quarter earnings.
The highlight of the week will come on Wednesday when Federal Reserve Chairman Jerome Powell heads to Capitol Hill to kick off two days of testimony in front of Congress. Powell will be delivering his semi-annual Monetary Policy Report. Market participants will be closely monitoring his language for any clues on what the central bank’s monetary policy path will look like going forward.
Some strategists believe that given the current economic and geopolitical landscape, stocks have limited room to run from current trading levels. Morgan Stanley strategist Andrew Sheets downgraded his global equities allocation to Underweight from Equal-weight and cited that he believes that over the next 12 months, there is only about 1% upside to his price targets for the S&P 500, MSCI Europe, MSCI EM and Topix Japan.
Sheets warned that even if the Federal Reserve eases monetary policy, the benefits will be outweighed by weaker growth. “We think a repeated lesson for stocks over the last 30 years has been that when easier policy collides with weaker growth, the latter usually matters more for returns. Easing has worked best when accompanied by improving data.”
Second-quarter earnings will be a major catalyst for the markets, according to Sheets. “On earnings, we think the market is underpricing the risk that companies lower full-year guidance. Just think about how much has changed since 1Q reporting in mid-April,” Sheets said. Since the end of the last earnings season, the U.S.-China trade war intensified, global economic data grew weaker and sentiment declined. “We believe all this signals risk to equities.”
Dow component Boeing (BA) stock fell more than 1% Monday after it lost a nearly $6 billion order by Saudi Arabia’s flydeal to rival Airbus. Flydeal will now be purchasing 30 Airbus A320neo jets. Boeing has failed to put its troubled 737 MAX planes back in the air after two fatal crashes killed hundreds due to a software issue. The company is still working with regulators on a software fix before the grounded jets are able to fly the skies again. Investors have feared that Boeing’s order books will eventually take a hit, as the 737 MAX jets stay grounded for longer.
Another Dow component, Apple (AAPL) is under pressure after Rosenblatt Securities downgraded the stock to Sell from Neutral. Though analyst Jun Zhang maintained his $150 price target, he warned that iPhone sales will be weak and iPad sales will see a meaningful decline in the second half of this year. Sales from the other products won’t be enough to buoy total revenue growth, according to Zhang. Shares sank 2% to close Monday’s session.
Deutsche Bank (DB) shares tumbled more than 6% Monday, after the bank officially began slashing 18,000 jobs, which represents about a fifth of the workforce. The bank will spend about $8.3 billion to radically transform its business. Deutsche Bank is planning to downsize its investment bank and cut total costs by a quarter by 2022. “Today we have announced the most fundamental transformation of Deutsche Bank in decades,” CEO Christian Sewing said in a statement on Sunday. “We are tackling what is necessary to unleash our true potential.”
