Stocks dip ahead of report on inflation
Stocks dipped Tuesday after some mixed earnings reports, though indexes remain roughly where they’ve been stuck for more than a month.
The Standard & Poor’s 500 fell 18.95 points, or 0.5%, to 4,119.17. The Dow Jones industrial average lost 56.88 points, or 0.2%, to close at 33,561.81, while the Nasdaq composite fell 77.36 points, or 0.6%, to 12,179.55.
PayPal Holdings fell 12.7% despite reporting better than expected profit and revenue for the latest quarter. Analysts pointed to its forecast for how much profit it expects to wring out of each dollar of revenue, which may have disappointed some investors.
Electric car maker Lucid Group dropped 5.6% after reporting a worse loss than expected for the latest quarter.
Skyworks Solutions sank 5.2% after reporting profit for the first three months of the year that matched forecasts. The semiconductor company’s comments about weakness in demand from China for Android phones may have frightened investors.
The writers’ strike, if it stretches on, could deliver a massive blow to the economy in Southern California. One expert predicted $3 billion or more in losses.
On the winning side of Wall Street was Palantir Technologies. It soared 23.4% after reporting a stronger profit than expected and saying demand for its new artificial intelligence platform “is without precedent.”
So far this earnings reporting season, which is approaching its final stretch, the majority of companies have been topping forecasts for first-quarter results. That’s largely because expectations were set quite low amid a slowing economy and high interest rates. Companies in the S&P 500 are still on track to report a second straight quarter of weaker profits from year-earlier levels.
“Companies have been able to do pretty well,” said Margie Patel, senior portfolio manager at Allspring Global Investments.
The better-than-feared results have given some support to Wall Street when many other worries are weighing on it.
Key among them is what will happen to the U.S. banking system, which is under stress after three big bank failures since March. Hurt by much higher interest rates, smaller and midsize banks are scrambling to reassure investors and customers that their deposits are stable and that they aren’t at risk of a sudden exodus of customers.
After finding some stability in the two prior days, stocks of regional banks under the heaviest scrutiny by Wall Street fell again Tuesday. PacWest Bancorp rose 2.3% after coming back from an earlier loss. Western Alliance Bancorp dropped 1.4% after swinging between losses and gains.
Critics of the government response to the Silicon Valley Bank collapse say it’s a taxpayer-funded bailout. They’re wrong.
The next big milestone for the market will be Wednesday’s report on inflation at the consumer level. Inflation has come down from its peak last summer, but it is remaining stubbornly high. That has raised uncertainty about what the Federal Reserve’s next move will be.
The central bank has already yanked its benchmark interest rate to a range of 5% to 5.25%, up from virtually zero early last year. High rates can smother inflation, but only bluntly, by slowing the economy and hurting investment prices.
Many investors are preparing for a recession to hit later this year because of much higher rates, as well as the potential for banks to pull back on lending because of their industry’s troubles.
“It seems that although they have more data and information than anybody, the Fed seems myopically focused on the inflation rate and unemployment rate rather than looking at the big picture,” Allspring’s Patel said. “What does the person on the street see? I think they see a lot more things to be concerned about than the Fed.”
She is hopeful that stocks can have positive returns this year, but she’s quick to say that’s not an expectation.
“I want to be optimistic, but when you look at the facts, you have to temper that quite a bit,” she said.
Worries about a recession and expectations for possible rate cuts by the Fed have caused yields to pull back since early March.
Looming over it all is a June 1 deadline. That’s when the U.S. government could potentially run out of cash to pay its bills unless Congress allows it to borrow more. The widespread expectation is that Congress will come to a deal before that deadline because the alternative would be widespread damage to the economy and financial markets.
But each day that passes without a deal raises concerns a bit more.
Worries about weakening demand sent crude oil slipping. Stocks also dropped in Shanghai, down 2.1%, after a report showed that imports to China slumped sharply last month.
In the bond market, the 10-year Treasury yield rose to 3.52% from 3.51% late Monday. The two-year Treasury yield, which moves more on expectations for the Fed, rose to 4.02% from 4.00%.
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