S&P, Nasdaq flat; Goldman leads Dow lower

NEW YORK, NY - JANUARY 09: Traders work on the floor of the New York Stock Exchange (NYSE) moments after the Opening Bell on January 9, 2017 in New York City. The Dow Jones Industrial Average retreated slightly in morning trading as the record high of 20,000 remains close. Spencer Platt/Getty Images/AFP == FOR NEWSPAPERS, INTERNET, TELCOS & TELEVISION USE ONLY ==

NEW YORK: The S&P 500 and the Nasdaq were flat on Tuesday morning, while Goldman Sachs led the Dow lower, as investors await the earnings season to test if Wall Street’s record levels are justified by corporate earnings in the fourth quarter.

Goldman Sachs fell 1.4% after Citigroup downgraded the stock, a move that comes ahead of reports by JPMorgan, Bank of America and Wells Fargo on Friday. JPMorgan was down 0.4%, while the other two were flat.

Banks have led a record-breaking run in US equities since Donald Trump’s election on Nov 8. But the rally’s momentum has stalled of late as investors now wait to see if he can deliver on his promises of fiscal stimulus.

The US President-elect will hold a news conference on Wednesday, his first since his election.

Wall Street’s rally has also led to soaring valuations - the S&P 500 is trading at about 17 times expected earnings, compared to its 10-year average of 14, according to Thomson Reuters Datastream.

“It’s the increasing weight of valuation in the market that maybe leading to less enthusiasm in 2017. The dollar is going to be a very important factor for the earnings season,” said Stephen Wood, chief market strategist, North America for Russell Investments.

“We expect a choppy, range-bound US equity market until we get more clarity on earnings.”

At 9:40am ET (1440 GMT) the Dow Jones Industrial Average was down 39.38 points, or 0.2%, at 19,848, the S&P 500 was down 1.42 points, or 0.06%, at 2,267.48 and the Nasdaq Composite was up 0.56 point, or 0.01%, at 5,532.37.

The dollar index has risen 4.3% since Trump’s victory. A strong dollar crimps US companies’ revenue from overseas markets.

However, S&P 500 companies overall are set to post their strongest quarterly growth in three years, with earnings estimated to have risen 5.8% in the fourth quarter, according to Thomson Reuters I/B/E/S.

Three of the 11 major S&P 500 sectors were flat on Tuesday, while five were lower, led by a 0.6% drop in telecom services sector.

A jump in healthcare stocks helped limit losses.

Illumina surged 17.4% to US$166.17 and was the top boost to the S&P after the diagnostics company gave a strong quarterly forecast and launched a new product.

Valeant jumped 10% following a deal to sell its Dendreon cancer business and three skincare brands for about US$2.12bil as the troubled firm looks to pay down its more than US$30bil debt.

Advancing issues outnumbered decliners on the NYSE by 1,502 to 1,063. On the Nasdaq, 1,365 issues rose and 829 fell.

The S&P 500 index showed one new 52-week highs and no new lows, while the Nasdaq recorded 21 new highs and three new lows. - Reuters