Dow snaps 3-day win streak and Nasdaq skids 1% lower

Dow snaps 3-day win streak and Nasdaq skids 1% lower

Small-cap Russell 2000 index drops nearly 2% on Monday

Stocks closed lower as Wall Street investors found few reasons to drive equity benchmarks further into record territory after markets ended last week at all-time highs.

What are major indexes doing?

  • The Dow Jones Industrial Average DJIA, -0.75% fell 123.04 points, or 0.4%, to close at 34,077.63, marking the first decline for blue chips after three straight gains.
  • The S&P 500 SPX, -0.68% slid 22.21 points, or 0.5%, to 4,163.26, halting a two-session win streak.
  • The Nasdaq Composite Index COMP, -0.92% fell 137.58 points, or 1%, to 13,914.77, also closing lower for the first time in three sessions.
  • The small-cap Russell 2000 RUT, -1.96% finished down 30.67, or 1.4%, at 2,232.

The Dow and S&P 500 closed at records on Friday, while the Nasdaq Composite booked its second-highest finish of all time. For the week, the Dow rose 1.2%, while the S&P 500 gained 1.4% and the Nasdaq Composite advanced 1.1%. It was the fourth straight weekly rise for the Dow and S&P 500, while the Nasdaq booked its third consecutive weekly gain.

What’s driving the market?

Although equities on Monday took a breather from last week’s record advance, analysts said the tone remained constructive given a lack of any major negative catalysts.

“Overall, it looks like clear skies for equity markets. Policy makers are still holding investors by the hand and vaccination programs have accelerated dramatically,” said Marios Hadjikyriacos, investment analyst at XM, in a note.

Half of all adults in the U.S. have received at least one COVID-19 shot, the Centers for Disease Control and Prevention reported Sunday, as the vaccination campaign hit another milestone.

“The only real risks on the radar are excess inflation that leads the Fed to shift gears abruptly, some new vaccine-resistant variant, or the geopolitical temperature rising further in critical theaters like Ukraine or Taiwan,” Hadjikyriacos said.

Some investors, however, warn that the market’s rise to record altitudes may make a retreat more likely.

“The rising tide is lifting all boats, but the recent rally shows a reversal of the relative year-to-date trends,” wrote Mark Hackett, Nationwide’s chief of investment research, in a Monday research note.

“Sentiment indicators suggest the market may be at risk for a pullback. The AAII Sentiment Survey shows 57% of respondents are bullish, the highest level in over three years. Fund flows reinforce this trend, with greater equity flows in the past five months tan in the prior 12 years combined,” Hackett said.

Stocks received a lift last week as earnings season got under way with solid results from big banks and as investors digested strong economic data.

Investors continue to watch the debate around President Joe Biden’s infrastructure plan, including his call to raise the corporate tax rate from 21% to 28%. President Joe Biden will hold a fresh round of talks with a bipartisan group of lawmakers on Monday over the scope and size of an infrastructure proposal.  

Axios reported Sunday that resistance among Senate Democrats was likely to limit a rise in the tax rate to 25%, which would raise $600 billion over 15 years and come in well short of offsetting the price tag of the eight-year $2.25 trillion package.

Investors are gearing up for a fresh round of earnings, with 81 constituents of the S&P 500 index, including 10 components of the Dow, set to deliver results.

“The heaviest period for earnings reports is this week and next. Obviously, recent market strength suggests high expectations. How companies perform relative to those expectations will determine the course of stock prices over the near term,” said James Meyer, chief investment officer at Tower Bridge Advisors.

Which companies are in focus

  • Dow component Coca-Cola Co. KO, +0.31% reported earnings and revenues Monday that topped Wall Street forecasts. Shares closed up 0.6%.
  • GameStop Corp. GME, -3.55% shares surged 6.3% after the videogame retailer said Chief Executive George Sherman will step down no later than July 31, after two years in the role.
  • Shares of electric-vehicle maker Tesla Inc. TSLA, +0.61% closed 3.4% lower. Two men died after a Tesla vehicle that authorities said was believed to be operating without anyone in the driver’s seat crashed into a tree Saturday night north of Houston.
  • Harley-Davidson Inc. HOG, +4.29% shares climbed nearly 10% after the motorcycle maker roared past first-quarter earnings forecasts. Separately, the company said it had received notification it would be subject to a 56% tariff on European Union imports. Harley-Davidson said it would launch an immediate legal challenge.
  • Herman Miller Inc.  MLHR, -1.75% and Knoll Inc.  KNL, -0.73% announced an agreement Monday to combine in a cash-and-stock deal valued at $1.8 billion that will create a leader in modern design for the home and office. Knoll shareholders would receive $11 in cash and 0.32 shares of Herman Miller for each share owned, equal to a premium of 45% over Knoll’s closing price on Friday. Herman Miller shares fell 8.7%, while Knoll shares jumped over 35%.
  • Peloton Interactive Inc. PTON, -1.16% said Monday that a recent warning to consumers from the U.S. Consumer Product Safety Commission to stop using its Tread+ product was “inaccurate and misleading.” The CPSC over the weekend issued an “urgent warning” about the Tread+ machines after multiple reports of small children and pets being injured beneath the machines, including one death. Peloton shares finished down 7.3% on Monday.

How are other assets faring?

  • The 10-year Treasury note yield BX:TMUBMUSD10Y rose around 2.8 basis point to 1.599%, near where it finished at the end of last week. Bond prices move inversely to yields.
  • Gold futures GC00, 0.30% ended down 0.5% to $1,770.60 on Comex. Meanwhile, U.S. benchmark crude futures CL.1, -0.32% rose 0.4% to settle at $63.38 a barrel.
  • The U.K.’s FTSE 100 UKX, 0.64% and Stoxx Europe 600 SXXP, 0.64% both booked losses of 0.3% and 0.1%, respectively.
  • The U.S. dollar tumbled 0.5% against its major rivals, based on trading in the ICE U.S. Dollar Index DXY, 0.08%.
  • Bitcoin BTCUSD, -2.79% was down 0.3% near $55,403 after a volatile weekend that saw the cryptocurrency trade as low as $51,907 Sunday, down around 20% from a recent peak of $64,829.14, according to CoinDesk.
  • In Asian trade, the Japanese Nikkei JP:NIK finished flat on Monday. The Shanghai Composite SHCOMP, -0.00% closed 1.5% higher, while the Hang Seng HSI, -1.76% edged up 0.5%.
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