US stocks struggled to gain traction as concern over the outlook for corporate earnings weighed on sentiment while investors assessed the path forward for central bank tightening.
(Bloomberg) — US stocks struggled to gain traction as concern over the outlook for corporate earnings weighed on sentiment while investors assessed the path forward for central bank tightening.
The S&P 500 fell back below the 4,000 level. The Dow Jones Industrial Average underperformed, dropping 1%, with financials weighing on the gauge of blue chips. The tech-heavy Nasdaq 100 posted modest gains after a six-day rally, outperforming benchmarks amid a drop in front-end yields.
Goldman Sachs Group Inc. slid the most in a year after reporting fourth-quarter net revenue below expectations, while Morgan Stanley rallied as its wealth-management business boosted revenue above forecasts. Pfizer Inc. retreated after Wells Fargo & Co. predicted earnings downgrades for the drugs company.
Earnings may set the tone for traders this week as the reporting season moves up a gear. Of the 33 S&P 500 companies that have posted results so far, 25 have beaten analysts’ expectations. While it’s still early days in the season, the nascent trend lags buoyant surprises of earlier quarters. UBS Wealth Management expects “quite a bit of downside here on the earnings” in the US, according to Hartmut Issel, head of Asia Pacific equities.
“While we envision more choppiness in markets in the first quarter, we see markets settling into a slow grind higher after that,” wrote Art Hogan, chief market strategist at B. Riley Wealth. “The Fed will have reached its terminal Fed funds rate in 1Q, and investors can start reacting to incoming data without the lens of what better news will mean for Monetary Policy. Good news for the economy can become good news for markets.”
Goldman Sachs fell as much as 8% after missing estimates. The results reflected lower net revenues in asset & wealth management as well as global banking & markets. Pfizer dropped more than 3% lower after Wells Fargo downgraded its recommendation on the stock. Morgan Stanley jumped 7.4%.
Treasuries posted modest gains at the front end of the curve, with the policy sensitive two-year yield falling 2 basis points. European sovereigns also caught bids, with the 10-year bund yield dropping eight basis points. The drop in yields suggested traders are betting pressures on rate hikes are easing. The dollar traded near the lowest level since April.
Read more: ECB Is Pondering Slower Hikes After Half Point in February
Data today showed New York state manufacturing activity plummeted in January to the lowest level since the early months of the pandemic as new orders and shipments collapsed. The measure has shown contraction in five of the last six months, underscoring the depth of the pain to the manufacturing sector as the Federal Reserve hikes interest rates.
More commentary
“Earnings season gets into full swing this week and the focus will be on jobs, wages, inflation, and margins for companies reporting,” wrote Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. “The expectation this year is for a modest decline in economic growth which should do little to dampen corporate profits. The next few weeks will be a good test of that thesis.”
“While we agree that evidence is building that inflation has definitively turned down, we caution against exuberance around the ‘inflation is dead’ narrative,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note. “We are still a long way from ‘mission accomplished.’”
Several Fed officials will be speaking this week, providing more clues on their policy priorities. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers including ECB President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.
Elsewhere, oil contracts traded higher as traders weighed the chances of a revival in Chinese demand after the nation’s growth data was published.
Stocks trading in Hong Kong and mainland China closed in the red after China said its economic growth last year slowed as Covid restrictions hammered activity. But better-than-forecast fourth quarter and December data add to optimism it may be primed for a recovery.
Key events this week:
- Earnings to include: Charles Schwab, Discover Financial, Interactive Brokers, Investor AB, Netflix, Procter & Gamble, Prologis, State Street
- Fed’s John Williams to speak, Tuesday
- Euro-zone CPI, Wednesday
- US retail sales, PPI, industrial production, business inventories, MBA mortgage applications, cross-border investment, Wednesday
- Bank of Japan rate decision, Wednesday
- Federal Reserve releases Beige Book, Wednesday
- Fed speakers include Raphael Bostic, Lorie Logan and Patrick Harker, Wednesday
- US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
- ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
- Fed speakers include Susan Collins and John Williams, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- US existing home sales, Friday
- IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 12:53 p.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average fell 1.1%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.4% to $1.0775
- The British pound rose 0.5% to $1.2249
- The Japanese yen rose 0.2% to 128.30 per dollar
Cryptocurrencies
- Bitcoin rose 0.3% to $21,205.9
- Ether fell 0.3% to $1,575.61
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.53%
- Germany’s 10-year yield declined eight basis points to 2.09%
- Britain’s 10-year yield declined six basis points to 3.32%
Commodities
- West Texas Intermediate crude fell 0.5% to $79.46 a barrel
- Gold futures fell 0.6% to $1,909.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar, Richard Henderson, Denitsa Tsekova, Srinivasan Sivabalan, Vildana Hajric and Isabelle Lee.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.