Financials lead S&P lower

It’s a case of two steps forward, one step back with the US stock market, after Citigroup’s earnings miss plays a part in a two-day rally grinding to a halt.

Today’s pullback by the S&P 500 from yesterday’s record close comes after the first major US banking company disappointed Wall Street.

Citigroup was the odd one out, undershooting analyst estimates with its quarterly earnings, after Wells Fargo, Bank of America, JP Morgan and Goldman Sachs had all managed to exceed forecasts. One common theme between them all is weaker earnings from the fixed-income market, as rising yields have impacted on bond trading volumes.

With fewer than 20 minutes to the close on Wall Street, the Dow Jones was down 0.50% at 16,400 while the S&P 500 had sunk 0.23% to 1844.1.

It’s still very early in the reporting season to be drawing conclusions about any overall trend, but there is nothing we have seen to worry me so far. The economic fundamentals in the US remain benign: regional Fed surveys from today and yesterday point to strong expansion in the manufacturing sector, today’s CPI shows inflation as tame, and jobless claims signal improvement in the labour market, albeit only slight.

The last few quarters have shown that US companies have done a good job of protecting earnings despite slow sales. Economic data of late has pointed to growing consumer activity, though, which gives me hope that sales will be a more positive story this time around.

Dow components American Express and Intel report after the market closes tonight. Tomorrow we hear from General Electric.

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