U.S. stocks finished lower Monday as warnings about accelerating inflation coupled with crude-oil trading below $50 a barrel overshadowed strong earnings from Bank of America Corp.
The Dow Jones Industrial Average DJIA, -0.29% fell 51.98 points, or 0.3%, to close at 18,086.40, with shares of McDonald’s Corp. MCD, -0.01% topping the losses. The Nasdaq Composite Index COMP, -0.27% lost 14.34 points, or 0.3%, to finish at 5,199.82.
The S&P 500 index SPX, -0.30% slipped 6.48 points, or 0.3%, to end at 2,126.50 with consumer discretionary and energy sectors the worst performers.
In an interview with CNBC, Jeffrey Gundlach reiterated his short positions on stocks and bonds and predicted that policy makers will have to resort to fiscal policies to support the economy. The shift to a fiscal stimulus will inevitably result in accelerated inflation and hurt equities, said the prominent investor. Gundlach singled out consumer discretionary stocks to avoid as they are most sensitive to rising prices.
Michael Hartnett, chief investment strategist at Bank of America, also cautioned against mounting price pressure and recommended investors hedge against inflation in real assets such as property and commodities.
In a sign of how investors are moving to safety, the S&P utility sector was the strongest performer on the day, up 0.6%. The sector is viewed as a defensive play, offering a higher dividend yield than the broader market.
A consensus that stock prices are too expensive is further limiting the market’s upside with the S&P 500’s price-to-earnings ratio at 28.2, above its historical average.
“Valuations are very high right now, and the earnings season is in trouble; we should have yet another quarter of falling profits,” said Mark Grant, managing director at Southwest Securities. “I do not see much prospect for an increase [in stock prices] for the balance of the year.”
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Richard Hastings, a macro strategist at Seaport Global Securities LLC, noted that bearish sentiment rose to 33.73% last week from 27.9% two weeks ago as the early batch of corporate earnings weren’t strong enough to convert pessimistic investors.
Hastings predicted that bears will continue to dominate trading until prices become more reasonable, which is only likely after the market undergoes a “shallow” correction of about 3.5%.
Meanwhile, oil futures also pressured U.S. equities. Crude-oil prices are often viewed as a gauge of the global economy, and as a result stocks have tended to move in tandem with the commodity. Oil futures CLX6, +0.42% fell 0.8% to settle at $49.94 a barrel as traders digested data showing an increase in active oil rigs in the U.S.
Stocks to Watch: Bank of America BAC, +0.31% reported both earnings and revenue that topped expectations, boosted by a rise in trading revenue. The stock closed up 0.3%.
Last week, a number of other major financial institutions—including J.P. Morgan Chase & Co. JPM, -0.52% Citigroup Inc. C, -0.02% and Wells Fargo & Co. WFC, -0.47% —also reported stronger-than-expected results, easing concerns over the financial sector.
Hasbro Inc. HAS, +7.43% shares surged mover than 7%, taking the crown as the best performer in the S&P 500 after the toy maker exceeded analysts’ forecast for profit and revenue.
Tesla Motors Inc.’s stock TSLA, +0.28% fell 1.3% after CEO Elon Musk tweeted that the maker of electric cars has delayed Monday’s product unveiling to Wednesday. “Needs a few more days of refinement,” Musk wrote in his tweet.
Supervalu Inc. SVU, +5.79% rose 5.8% following news the supermarket operator plans to sell its Save-A-Lot business for about $1.4 billion.
Other markets: European stocks SXXP, -0.74% fell 0.8% while Asian markets closed mixed. Gold futures GCZ6, +0.01% and the ICE U.S. Dollar Index DXY, -0.02% were little-changed.
Economic news: On the Federal Reserve front, Fed Vice Chairman Stanley Fischer said weak productivity and an aging population were among the factors holding back interest rates. While he didn’t talk about the outlook for rates in the near term, the Fed is widely expected to raise rates at its December meeting.
In the latest economic data, a gauge of New York-area manufacturing became more pessimistic in October, while September industrial production rose slightly.