US open: Stocks drop as Pfizer, Under Armour disappoint; Fed announcement eyed

Wall Street stocks suffered more losses at the open on Tuesday as investors digested uninspiring earnings from the likes of Pfizer and Under Armour and key readings on the US manufacturing sector ahead of results from tech giant Apple, with all eyes on the Federal Reserve's latest policy announcement.

At 1530 BST, the Dow Jones Industrial Average had lost 0.84%, while the S&P 500 and Nasdaq were 0.30% and 0.01% lower, respectively.

Connor Campbell, SpreadEx's financial analyst, said, "The Dow Jones really, really wasn't happy with the dollar's rediscovered hutzpah. Diving 200 points the Dow dropped under 24,000 to tease levels not seen in a month. And this is all before the week's dual main-events occur: Wednesday sees what will likely be a hawkish, if uneventful, Fed meeting, while Friday sees the non-farm jobs report, and with it the chance of the unemployment rate hitting 4.0%. The Dow, then, could do with a decent set of figures from Apple this evening."

Investors were digesting news that Donald Trump has given the EU, Canada, Mexico and other allies another 30-day reprieve from new steel and aluminium tariffs. The exemptions will now last until 1 June, giving the US and the exempted nations more time to work out deals.

Rabobank pointed out that this is the final temporary extension, which means it does little to lessen the unpredictability of the final outcome. It does, however, give the US more time to build a coalition with its key trading partners against China.

Corporate news came thick and fast, with Boeing down 2.21% after announcing plans to buy plane-parts specialist KLX Inc for $3.2bn.

Drugmaker Pfizer was also under the cosh after reporting a somewhat mixed quarter and sportswear brand Under Armour lost 5.18% after it posted stronger-than-expected sales for the first quarter, boosted by its international business and growth within the apparel category, but noted that weaknesses persist in the US market.

Elsewhere, Tenet Healthcare surged 12.23% after better-than-expected quarterly earnings late on Monday, while US-listed shares of oil giant BP ticked up 0.74% after it posted a 71% rise in profit for the first three months of 2018 as its upstream business reported its strongest quarter for more than three years.

After the closing bell, numbers from Apple, Mondelez and Snap are on tap.

London Capital Group analyst Jasper Lawler said: "The earnings reports from Apple later is set to attract significant market attention, particularly given the expectations for sluggish iPhone X sales at the world’s largest company by market cap.

"What is clear is that the markets no longer assume that solid Apple results are the given that they once were. Investors have been on edge that Apple might not live up to expectations. As long as Apple doesn’t give a downbeat guidance, the market should be able to take what Apple throws out. Given the negative bias to the markets, a downbeat guidance from Apple could prove too much."

On the data front, Markit's manufacturing PMI rose to 56.5 in April from 55.6 in March, indicating the strongest manufacturing growth in over three-and-a-half years.

Figures from the Institute for Supply Management were less rosy, however, with the ISM's headline manufacturing index down to 57.3 in April from 59.3 in March, missing expectations for a smaller drop to 58.3.

Andrew Hunter, US economist at Capital Economics, said that while the drop was worse than the consensus forecast and echoes the recent weaker tone of some of the early regional surveys, it remains consistent with annualised GDP growth rebounding above 3% in the second quarter.

"The press release suggests that uncertainty caused by the recent escalation of protectionist threats is weighing on some manufacturers. But with the temporary exemptions to the steel and aluminium tariffs having just been extended for another month, the trade restrictions actually implemented so far remain too small to have a major impact on the economy.

"In any case, with global growth likely to hold up fairly well and the dollar’s depreciation still supporting exports, there are good reasons to expect manufacturing activity to continue to expand at a healthy rate over the coming months."

Meanwhile, data from the Commerce Department showed US construction spending unexpectedly fell in March.

Spending fell 1.7% to a seasonally-adjusted annual rate of $1.28bn, missing expectations for a 0.5% increase. On the year, spending was up 3.6% to $1.24bn.

Private sector construction spending dropped by 2.1% to a seasonally-adjusted annual rate of $987.5bn, marking the biggest drop since January 2011. Spending on residential construction declined 3.5% to $536.8bn and non-residential construction spending slipped 0.4% to $450.7bn.

The Federal Reserve's two-day policy meeting will kick off later in the day, where the Fed is widely expected to leave interest rates on hold but investors will still be watching for any hints about an interest rate hike in June.