Three Strikes For U.S. Stocks, ETFs

Stocks and ETFs drop for third day in a row on Europe, earnings fear
 
U.S. stock markets started the week on a down note yesterday as earnings season opened and troubles in Europe continue to bubble.
 
The Dow Jones Industrial Average (NYSEARCA:DIA) slid -0.28%, the Nasdaq Composite (NYSEARCA:QQQ) was off -0.2%, the S&P 500 (NYSEARCA:SPY) fell 0.16% while the Russell 2000 (NYSEARCA:IWM) dropped 0.3%. In spite of a lower close, major indexes managed to climb from lows set earlier in the session.
 
In overseas news, Europe continues to struggle with rising bond yields and  uncertainty as policy makers met in Brussels yet again in an attempt to move forward on agreements made at the recent Euro summit. France’s business confidence index dropped to its lowest level in nearly three years and Spain’s 10 year bond jumped to 7.06% while Italy’s climbed to 6.1%, both in the “red zone” near 7%.
 
Greece’s government survived a no confidence vote as it presses for better terms for its recently negotiated bailout agreement and ratings agency Egan-Jones lowered its rating on Netherlands and Austria with a negative outlook.
 
At home, the big news maker was Alcoa, Inc (AA), which reported after the close at the start of what is forecast to be a lackluster earnings season.
 
Alcoa reported a loss of $2 million compared to $322 million profit in the year ago quarter. Revenue was down and the stock gained ground in the after hours session. However, Alcoa is down some 45% from year ago levels.
 
In the ETF space, Materials Select Sector SPDR (NYSEARCA:XLB) fell 0.63% on the day and is down approximately 10% from year ago prices.
 
Negative earnings news also continued after hours as Advanced Micro Devices (AMD) warned of lower sales and earnings with a forecast drop in sales of 11%.
 
In the day’s only economic report yesterday, Consumer Credit jumped 8% in May, an increase of approximately $17 billion compared to estimates of $7.8 billion. Tomorrow brings NFIB small business index and job openings along with more earnings reports.
 
To counteract all of the negativity, Fed Presidents John Williams (San Francisco) Eric Rosengren (Boston) and Charles Evans (Chicago) all telegraphed support for more quantitative easing by the Federal Reserve as both the Fed and market participants grow more nervous over the ongoing stream of negative economic news.
 
Of course the big question is whether or not another round of “QE” will have any kind of lasting effect as markets seem to be growing more immune to central bank intervention around the world.
 
Bottom line:  Major U.S. stock indexes and ETFs started the week on a downbeat note as worries over Europe and earnings continue to mount. We can expect more volatility and choppy action ahead.