After largely staying the cause and maintaining a dovish stance the FOMC gave US stocks a chance at a recovery rally yesterday. This morning valuations concerns re-emerge and investors looks set to use yesterday’s rally as a chance to sell stocks en masse into earnings season with a big drop on the open expected.
Futures suggest the Dow Jones will open a huge 105 points lower at 16,880 with the S&P 500 expected to open 12 points lower at 1,960 and the Nasdaq 100 22 points lower at 3,870.
With the Dow having hit 17,000 just ahead of earnings season, companies now need to justify all time high stock prices, a reiteration of the same from the Fed hasn’t proved enough to dispel concerns.
The general consensus is that there will be an improvement in earnings over the first quarter based on company outlooks and apparent improvement in economic conditions since the contraction in the first quarter.
From an investing standpoint, when the major benchmark hits a big number, investors may be feeling it makes some sense to hold on, take some stocks off the table or even sell short until earnings offer some confirmation on valuations.
In the light of recent regulatory problems for banks, earnings from Wells Fargo (NYSE:WFC) tomorrow will be a potential tipping point.
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