Wall Street plunges as strong earnings fail to stem renewed inflation fears

Stocks on Wall Street fell as healthcare companies and industrial stocks dashed hopes of the first month of gains since January. Renewed inflation fears followed a government report on private consumption.

A jump in shares of McDonald’s had led the Dow Jones Industrial Average and the S&P 500 higher earlier in the day.

The Dow rose as much as 187 points soon after the opening bell. But weak guidance from aluminium products maker Arconic and questions over how long before Celgene can seek approval for its multiple sclerosis drug sent shares of both those stocks sliding.

Arconic fell 19% after the company lowered its 2018 guidance, saying it now expects higher revenue but lower per-share earnings. 

Shares of Celgene declined 4.5% after Morgan Stanley said in a report that the biotech giant would need at least a year before it can attempt to resubmit its multiple sclerosis drug ozanimod to the US Food and Drug Administration for approval. 

Shares of Marathon Petroleum fell 7.5% after it announced a $US23 billion deal to buy rival Andeavor to create the largest US oil refiner. Andeavor shares, however, rose 13%.

Telecoms shares struggle
Shares of telecommunications companies also struggled after T-Mobile US announced a $US26 billion deal to buy Sprint. T-Mobile shares fell 6.6%, while Sprint tumbled 14%. Verizon Communications shed 3.5%.

McDonald’s, meanwhile, gained 4.4% after reporting better-than-expected profit and revenue for the first quarter.

Nearly 80% of S&P 500 companies that have reported results for the first three months of the year have exceeded analysts’ expectations, the widest percentage of beats since the third quarter of 2008.

“Earnings are on track to be the best we’ve seen in some time. This is really positive for the stock market,” says Crit Thomas, a global market strategist with Touchstone Investments.

At the close, the Dow fell 148.04 points, or 0.6%, to 24,163.15. The S&P 500 dropped 0.8% to 2648.05 and the Nasdaq Composite was down 0.75% to 7066.27.

Apple shares rose ahead of its quarterly earnings report tomorrow, even as the strong earnings period has failed to dampen other factors weighing on the market.

“Earnings have been stunning in some cases but the market hasn’t really reacted to these pretty strong, largely across the board, earnings surprises,” says Tom Manning, chief executive of FL Putnam Investment Management.

Inflation rises to 2%
New economic data showed year-on-year inflation hit the US Federal Reserve’s 2% target for the first time in more than a year in March.

The Commerce Department’s price index for personal consumption expenditures renewed inflation concerns among investors and could encourage continued rises in interest rates this year.

“The market is in a struggle between really awesome news on the earnings front and the prospect of what the Fed will do,” Mr Thomas says.

He has become more concerned during the past month with how the US proceeds with its trade tariffs against China and foreign suppliers of steel and aluminium.

The 10-year US Treasury yield eased to 2.957% from 2.959% on Friday.

Oil prices were subdued as the market continued to focus on the fate of the Iran nuclear deal and Israeli Prime Minister Benjamin Netanyahu’s revelation that it maintained a secret and comprehensive plan to build nuclear weapons while lying repeatedly that it didn’t.

US crude futures were steady at $US68.13 a barrel while Brent, the global benchmark, rose 10USc to $US74.74 a barrel.

The Stoxx Europe 600 declined 0.2%. France’s CAC 40 rose 0.7%, Germany’s DAX was up 0.25% and the UK’s FTSE 100 rose 0.09%.