Wall Street looked set to spoil the presidential inauguration ceremony this Friday as US stocks closed sharply lower on Tuesday when the Trump-inspired rally extinguished.
Following a leadership speech on Brexit from the British Prime Minister Theresa May, sterling had its best day’s gains since 2008. A strong pound, hence weaker dollar, was partly to blame too for Wall Street’s woes, and jitters ahead of Friday’s inauguration ceremony.
The S&P 500 financials sector index was down 2.3% on Tuesday - its biggest daily drop since June when the Brexit referendum result was declared – and suggesting that the rally spurred by Donald Trump’s presidential victory in November – which helped drive up the index to successive record highs – is faltering.
The overall S&P 500 market bellwether closed down 0.3% at 2267 – having never during the session managing to come up for air – was led lower by the banking fraternity. Financial stock Comerica Inc (NYSE:CMA) led the decliners, with a 6.5% drop to $65.37 while Bank of American (NYSE:BAC) was down 4.2% at $22.05. PNC Bank (NYSE:PNC) lost 4.1% to $113.93 and Morgan Stanley (NYSE:MS) was down 3.8% to $42.15.
Only energy stocks found some respite in higher oil prices. The US benchmark WTI was up 0.3% at $52.50 and the top risers on the S&P 500 were Noble Energy (NYSE:NBL) up 7.1% to $40.05 and NRG Energy (NYSE:NRG) up 5.1% to $15.34.
Meanwhile, the Dow Jones Industrial Average ended down 0.3% at 19,826 and the tech-heavy Nasdaq Composite down 0.6% at 5538.
The losses among smaller stocks was even worse.
The S&P Midcap 400 ended down 0.9% at 1672 and the S&P Smallcap 600 was 1.4% lower at 828, while the wider small-cap index, the Russell 2000, closed down 1.5% at 1352.
A total of 56% of NYSE stocks fell and 44% gained on Tuesday. Markets were closed on Monday for Martin Luther King Day.
Early trading
US stocks were lower on Tuesday after futures trading reversed and the Trump rally showed signs of fatigue, curbing investors’ risk appetite.
The S&P500 market bellwether was 0.3% lower at 2268 and led by Comerica Inc (NYSE:CMA) down 5.6% at $65.98. Although its fourth quarter earnings were ahead of expectations, investors had already turned negative on the stock in the pre-market period.
“The US currency has been topping out in 2017 and (US President-elect) Donald Trump’s comment that the dollar is already “too strong” was the final nail in the coffin. We noted on January 6 that “The December payrolls report hasn’t cast any major doubts over the chance of three rate hikes in the US this year. At the same time it probably hasn’t done enough to prevent the inevitable pullback in an over-extended US dollar which appears to have begun this week,” said Jasper Lawler, senior market analyst at London Capital Group.
“The “Trumpflation” trade has been looking especially deflated since The Donald’s first press conference as President-elect. There is significant execution-risk on the new administration’s policies, and that’s once we even know what they are. We believe this dollar correction has further to go,” he added.
The tech-heavy Nasdaq Composite – touted as a 0.5% gainer – was down by 0.5% at 5547, while the Dow Jones Industrial Average shed 0.3% to 19,835. It’s best moment was 19,882 – still too far to break the 20,000 milestone.
The S&P Midcap 400 was down 0.5% at 1678 and led by Advanced Micro Devices (NASDAQ:AMD) down 6% at $9.95, while the S&P Smallcap 600 lost 1% to 831.
Pre-Open
US stocks are expected to resume trading higher on Tuesday after Wall Street markets were shut the previous day for Martin Luther Day, as the dollar takes a bath against sterling.
The British pound gained. 2.2% against the dollar at $1.2308. It came after higher-than-expected UK inflation data but also as also after Prime Minister Theresa May’s speech on Brexit, the so-called exit of Britain from the European Union.
Sterling climbed to its best day in eight years after May delivered her biggest speech on Brexit to date – gunning for a clean or “Hard Brexit”, with currency shorts unwinding as traders reversed bets on future falls in the pound.
Stocks often gain when the domestic currency weakens as exports become more competitive.
The S&P 500 market bellwether is seen up 0.3% and the tech-heavy Nasdaq Composite a very hefty 0.5% higher, while the Dow Jones Industrial Average won’t even threaten to cross 20,000 with its 0.03% expected gain.
But if markets open higher it will be in defiance of the latest business activity data. The New York Empire State Manufacturing Index, a key test for the kinds of industries US President-elect Donald Trump is seeking to help, dropped to 6.5 in January from 7.6 in December. It was also lower than a forecast rise to 8.5.
Three major Fed officials will be speaking during the session and this is could reinforce the view shared last week by Fed Chair Janet Yellen that there are no obstacles to further credit tightening in 2017. William Dudley of New York, and Yellen’s right hand man is among the speakers, with Fed Board of governors’ Lael Brainard at 1000 ET (1500 GMT) and John Williams of San Francisco at 1800 ET (2300 GMT).