Stocks Decline Ahead of Busy Earnings Reports Week

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Principal Points

• Stocks slide on Monday ahead of earnings week, futures remain negative on Tuesday
• Microsoft stock steady after the purchase of Nuance Communications

US stocks finished lower on Monday as investors brace for heightened volatility during the corporate earnings season. The busy earnings week will also deliver impactful economic data that kicks off with today’s US consumer price data for March. The data will show whether inflation fears are based on fundamentals or rather the expected bump in prices will prove groundless.

As the start of the earnings season unfolds, market participants are once again repositioning their portfolios to meet the anticipated earnings, particularly by the banking sector. This week, the market will be reporting first-quarter earnings from JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo. In addition, other companies from various sectors will also report earnings, including BlackRock Inc., Delta Air Lines, PepsiCo, and UnitedHealth Group.

In April, the largely neglected tech shares have staged a significant comeback after investors pushed them aside prompted by rising yields and inflation concerns. In April, however, technology stocks have been at the helm of the rally that has pushed the major benchmarks to record highs.

Traders Stick to a Cautious Approach

Market participants still have reasons to be cautious, given the continued coronavirus outbreaks in different parts of the world, including the European Union. The US has been keeping new cases under 80,000 since mid-February amid a successful vaccination campaign across the states.

Against this backdrop, investors decided to act cautiously on Monday, as the main stock gauges paused to breathe and ended the session in negative territory. The Dow Jones Industrial Average slipped 55.20 points, or 0.16%, ending the day at 33,745.40. The S&P500 flatlined near its record and finished lower by less than one point, virtually unchanged at 4,127.99. The Nasdaq Composite turned lower by 50.19 points, or 0.36%, closing at 13,850.

Microsoft finished fairly unchanged yesterday after the software giant announced it will acquire speech-recognition company Nuance Communications. The $19.7bn deal is the second-biggest merger for Microsoft. The company will purchase Nuance stock at $56 a share, a 23% premium to its Friday closing price in an all-cash deal. The merger, expected to close around the end of the year, will allow the current CEO of Nuance, Mark Benjamin, to remain in his position.

Microsoft CEO Satya Nadella said Nuance will be the gateway for moving deeper into the healthcare sector. “AI is technology’s most important priority, and healthcare is its most urgent application. Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate the growth of Microsoft Cloud for Healthcare and Nuance,” Mr. Nadella said in a blog announcing the deal.

Microsoft shares are trading little changed around $255 on Tuesday in the pre-market hours, while the broad market is set to dive into the red at the opening. Futures tied to the Nasdaq Composite indicate a lower open by roughly 0.20%, while S&P futures and Dow Jones futures are down by about 0.5%.