NEW YORK (`) – U.S. stock indexes drifted lower Monday as Wall Street remains reluctant to make big moves amid questions about where the economy, interest rates and corporate earnings are headed.
The S&P 500 was down 0.1% in midday trade after barely easing last week. The Dow Jones Industrial Average was up 14 points, or less than 0.1%, to 33,823 as of 11:00 a.m. EST, while the Nasdaq Composite was down 0.4%.
Coca-Cola rose 0.6% after reporting stronger earnings and sales for the first three months of the year. It was the only company in the S&P 500 to report Monday morning, but more than 170 others are expected to follow this week.
The question is whether they can beat the low bar Wall Street has set for them, and what the CEOs of these companies are saying about earnings prospects later this year. Analysts expect S&P 500 companies to report a roughly 6% year-over-year decline in earnings per share, which would be their worst result since spring 2020, when the pandemic slammed the economy.
Some of Wall Street’s most influential companies will be reporting this week, including Microsoft on Tuesday and Amazon on Thursday. As usual, the majority of companies beat earnings forecasts this reporting season.
Expectations are broadly low as inflation remains high and interest rates are much higher than last year, hurting large parts of the economy.
The Federal Reserve has been raising interest rates at a rapid pace in hopes of undercutting high inflation. High interest rates can do this, but only by outright slowing down the entire economy. This increases the likelihood of a recession while hurting investment prices.
In addition to this week’s earnings storm, Wall Street is also awaiting the first estimate of how fast the US economy has grown over the first three months of the year. Economists are forecasting a slowdown in annualized growth from 1.9%, down from 2.6% in the fourth quarter.
Higher interest rates have already slowed the housing market by making mortgages more expensive. Manufacturing and other sectors of the economy have also shown pain, while the labor market has remained remarkably resilient.
The report on the US economy will be one of the last data ahead of the Federal Reserve’s next meeting, which is scheduled for next week. Much of Wall Street expects to hike rates at least once more before likely pausing.
For more than a year, it has increased interest rates at each of its meetings, sometimes by double or triple the usual amount. The overnight rate is now in a range of 4.75% to 5%, up from practically zero at the start of last year.
Many traders are betting that the Fed will need to cut rates later this year to support the economy. But the Fed has so far insisted it will keep rates high at least until the end of this year. Inflation remains too high for their liking, even though it has passed its peak last summer.
“The Fed appears determined to fight inflation, even if a more pronounced slowdown occurs,” Morgan Stanley strategists led by Michael Wilson wrote in a report.
High interest rates have already caused cracks in the banking system, with the second and third largest US. Bank failures in history rocked the markets last month. The worst of the crisis appears to be over, but smaller and mid-sized banks continue to be tested harshly as they seem most at risk from customers withdrawing their deposits.
First Republic Bank, which has been the center of attention, is set to release its latest quarterly results after Monday’s close. The stock was up 11.1% ahead of the report, making it one of the biggest gainers in the S&P 500.
The banking industry’s struggles were global as higher interest rates worldwide prompted investors to look for potential weaknesses. Credit Suisse, a giant investment bank, announced Monday that it had recorded outflows of more than 61 billion Swiss francs (almost 69 billion US dollars) in the first three months of the year. It is about to be swallowed up by competitor UBS after regulators orchestrated its takeover.
France and Germany are also reporting economic growth this week.
“There is no doubt that the global economy is weakening and is vulnerable to a further slowdown,” ACY Securities’ Clifford Bennett said in a report.
Stock indices across Europe were mixed, while markets in Asia also made modest moves. Japan’s Nikkei 225 rose 0.1%, while Hong Kong’s Hang Seng slipped 0.6%.
One of Wall Street’s biggest losers was Bed Bath & Beyond, which fell 23% to 23 cents after filing for bankruptcy protection.
The struggling retailer’s stock has had a wild ride over the past few years as investors bet on whether it could successfully turn around its operations, sometimes rising or falling 20% or more in a single day. The arrival and departure of an influential investor who played a key role in GameStop’s “meme stock” craze contributed to some of the biggest swings.
In the bond market, the yield on the 10-year Treasury fell to 3.51% from 3.57% late Friday.
` business writer Joe McDonald contributed.
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