By Will Horner and Julia Carpenter
U.S. stocks fell Tuesday, extending their losses as investors assessed blue-chip companies' profits and sales prospects.
Investors are looking to companies' first-quarter results and their outlooks for the rest of the year to gauge whether valuations on stocks are justified. Strong U.S. economic data has bolstered expectations and fueled the recent rally that has left major indexes hovering close to records.
"All these company share prices are near or close to record highs and we are seeing a lot of people taking money off the table," said Michael Hewson, chief market analyst at CMC Markets. "There is a general lack of impetus."
Rising Covid-19 infection levels in some countries and signs that the vaccine rollout may be faltering are now tempering that optimism.
The Dow Jones Industrial Average dropped 256.33 points, or 0.8%, to 33821.30, while the S&P 500 fell 28.32 points, or 0.7%, to 4134.94, and the Nasdaq Composite lost 128.50 points, or 0.9%, to 13786.27.
Investors entered earnings season with high expectations, particularly for economically sensitive stocks such as banks and retailers that stand to win the most from the economy reopening.
"The only risk is that expectations across the board are so high, they are going to be very difficult to meet," said Seema Shah, chief strategist at Principal Global Investors. "We are getting into territory -- both with earnings and economic data -- where it will be very difficult to have positive surprises."
Airline stocks were among Tuesday's losers. United Airlines fell $4.69, or 8.5%, to $50.30 after reporting weaker-than-expected results for the first quarter. Other airlines followed, with American Airlines Group, Delta Air Lines and Southwest Airlines falling more than 3%.
"Air travel is really a story of two segments," said Ed Keon, chief investment strategist at QMA. "Leisure travel is back, but business travel is still way down. To really get back to profitability, they need the business traveler to come back, and that is still happening very slowly."
Shares of manufacturing and tech companies, however, may benefit in the coming months, Mr. Keon said, as the global shortage of computer chips, lumber and other supplies continues.
"These may not last forever, but at least for the moment there are spot shortages both of goods and ways of getting those goods to customers," he said. "That is likely to continue to put some upward pressure on some of those products and services."
Kansas City Southern shares jumped $39.10, or 15%, to $295.50 after Canadian National Railway said it plans to offer $30 billion for the railway operator, likely sparking a bidding war.
"When we see recovery in a lot of the manufacturing sector, for example, or in the energy sector, or even in the minings and commodities sector, a lot of that is predicated on anticipation of a more normalized economic environment that will look more like 2019 than 2020," said George Maris, co-head of equities, Americas, at Janus Henderson.
In after-hours trading, shares of Netflix dropped 11%after the streaming giant said its first quarter subscriber growth fell short of expectations -- adding only another 4 million subscribers globally, less than its forecast of 6 million.
In the bond market, the 10-year U.S. Treasury yield edged down to 1.562% from 1.599% on Monday. Yields fall as prices rise.
In cryptocurrency markets, Dogecoin, the digital currency created as a joke, pared gains after climbing more than 8,000% this year. By Tuesday, it fell to 31 cents, according to CoinDesk, despite some online users' efforts to push it to $1 to recognize what some have called "Doge Day."
Overseas, the pan-continental Stoxx Europe 600 fell 1.9%. The U.K.'s FTSE 100 retreated 2% as tobacco companies dropped.
In Asia, major stock indexes were mixed. Japan's Nikkei 225 fell 2%, while Hong Kong's Hang Seng ticked up 0.1%. The Shanghai Composite Index edged down 0.1%.
Write to Will Horner at William.Horner@wsj.com and Julia Carpenter at Julia.Carpenter@wsj.com
(END) Dow Jones Newswires
April 20, 2021 17:12 ET (21:12 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.