Wall Street stocks closed lower despite largely solid earnings as investors focused on a heavy week for second-quarter results, led by downtrodden banks.
The benchmark S&P 500 was down 0.8 per cent at 1,305.44, ending at its lowest level in July.
All of the S&P 500’s top ten sectors closed down on Monday, led by financials down 1.4 per cent.
The Vix volatility index, known as Wall Street’s “fear gauge”, has risen sharply this month from a low of 15. On Monday, the index traded as high as at 21.50, indicating an elevated level of market stress.
The Dow Jones Industrial Average was down 0.8 per cent to 12,385.16 with the technology-heavy Nasdaq Composite also in negative territory, down 0.9 per cent at 2,765.11.
This week, 106 S&P 500 companies will release earnings results, with 26 financials reporting, led by Bank of America, Goldman Sachs and Wells Fargo due on Tuesday. Shares in BofA were down 2.8 per cent at $9.72, Goldman was down 0.6 per cent at $129.33, while Wells was down 1.1 per cent at $26.88.
Analysts expect financials will see earnings decline 22.3 per cent, down from a forecast rise of 18.9 per cent a month ago, according to John Butters, senior earnings analyst at FactSet. Excluding BofA, estimated earnings for financials are actually seen rising 12.5 per cent, but that is significantly lower than expected a few months ago.
Greenhill was unchanged on the day at $51.00. The US investment bank rushed to release strong second-quarter earnings ahead of schedule on Sunday. The company sought to calm investor fears after the departure of its third managing director.
Discount retail broker Charles Schwab closed down 0.3 per cent at $14.97 after reporting earnings that beat estimates, as revenue generated by client advisory increased.
Overall, S&P 500 earnings growth is set to rise 7.1 per cent year-on-year in the second quarter, according to FactSet, including BofA’s expected loss. That sets the S&P up for its first single-digit earnings gain after six quarters of double-digit results.
“We have seen a modest downward revision to the 2011 S&P 500 consensus earnings per share estimate, due in part to Bank of America’s lowered guidance and lower oil prices,” said Adam Parker, chief US equity strategist at Morgan Stanley.
“The 2012 S&P 500 earnings per share estimate has fallen a slight 0.5 per cent from its mid-June peak, but remains lofty in our view at $113. We continue to believe that first half 2011 estimates are achievable, but the second half is a concern,” added Mr Parker.
Traders were also watching ongoing negotiations in Washington over raising the $14,300bn federal debt ceiling before a deadline of August 2. Last week, S&P and Moody’s each warned that a failed debt payment by the US Treasury would result in a downgrade of the triple A rating of the US.
“Until we get some announcement that there is a debt deal here in the US, the market will also be dominated by European debt worries and the low volume that is causing more of a volatile situation. Shortly the market will begin to divorce itself from these issues as earnings season has been good,” said Peter Cardillo, chief economist with Avalon Partners.
The S&P energy sector was down on Monday even as earnings mostly beat expectations, closing down 0.4 per cent.
Halliburton, the oilfield services provider, closed up 0.1 per cent at $53.12 despite the company releasing earning results that beat estimates before the opening bell. Its second-quarter profit increased as higher crude prices led to more spending on exploration and production, with net income rising to $739m or 80 cents a share.
Out of 44 companies reporting second-quarter earnings by Monday morning, 31 had beaten expectations, with earnings on average outpacing forecasts by 8.9 per cent, according to S&P Valuation and Risk Strategies Research.
IBM closed down 0.2 per cent at $175.28. The company beat estimates, releasing positive second-quarter earning results after the closing bell.
On the media sector, News Corp skidded 4.3 per cent at $14.96 at closing. The company is still in the spotlight as the UK phone-hacking scandal continues to unravel and the group faces possible legal challenges in the US. On Monday, shares in News Corp kept plummeting. Mr Murdoch and his son James are due to appear before a UK parliamentary committee on Tuesday.
With Delta Air Lines at the helm, down 4.1 per cent at $8.06, shares of major US airlines tumbled to one-year lows on Monday amid expectations that travel will slow down in the autumn.
Elsewhere, LinkedIn dropped 6.9 per cent to $102.44 as JPMorgan Chase, one of the underwriters of the company’s initial public offering, downgraded its rating from “overweight” to “neutral”. The social network focused on job seekers began trading in May and its shares have risen 47 per cent since June 24.