Stocks drift ahead of deluge of earnings, economic data

By STAN CHOE
AP Business Writer

NEW YORK (AP) — Stocks are drifting Monday ahead of reports that could offer clues on questions that have kept Wall Street at a standstill, including on where the economy and corporate profits are heading.

The S&P 500 was virtually unchanged in late trading after barely budging last week. The Dow Jones Industrial Average was up 41 points, or 0.1%, at 33,850, while the Nasdaq composite was 0.3% lower with less than an hour to go in trading.

Coca-Cola was edging 0.5% lower after it reported stronger-than-expected profit for the first quarter but refrained from raising forecasts for sales for the full year. It was the only company in the S&P 500 to report Monday morning, but more than 170 others are scheduled to follow it this week.

The question is whether they can top the low bar that Wall Street has set for them, and what CEOs say about their prospects for profits later this year. Analysts expect S&P 500 companies to report a roughly 6% drop in earnings per share from a year earlier, which would be their worst showing since the spring of 2020 when the pandemic paralyzed the economy.

Some of Wall Street’s most influential companies are set to report this week, including Microsoft on Tuesday and Amazon on Thursday. Several of these Big Tech stocks were among the heaviest weights on the market. Microsoft fell 1.4%, and Amazon dipped 0.8%.

Fox fell 3.2% for one of the bigger losses in the S&P 500. Its popular but polarizing prime-time host Tucker Carlson is leaving Fox News, the network announced abruptly on Monday. The move comes less than a week after the company reached a $787.5 million settlement over charges that it promoted lies about Dominion Voting Systems through its 2020 election coverage.

Bed Bath & Beyond was another loser, dropping 31.8% to 20 cents after filing for bankruptcy protection.

The stock of the struggling retailer has been on a wild ride as investors bet on whether it could successfully turn around its operations, sometimes surging or plunging by 30% or more in a single day.

The majority of companies so far this earnings reporting season have been topping forecasts, as is usually the case. Expectations are broadly low because inflation remains high and interest rates are much higher than a year earlier, which has hurt swaths of the economy.

The Federal Reserve has jacked up interest rates at a furious pace in hopes of undercutting high inflation. High rates can do that but only by bluntly slowing the entire economy. That ups the chances for a recession, while also hurting prices for investments.

Besides this week’s blizzard of earnings reports, Wall Street is also waiting for the first estimate of how quickly the U.S. economy grew in the first three months of the year, among other data. Economists predict it will show a slowdown to growth of 1.9% at an annual rate, 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 areas of the economy have also shown pain, while the job market has remained remarkably resilient.

The report on the U.S. economy will be one of the final pieces of data before the Federal Reserve’s next meeting, scheduled for next week. Much of Wall Street expects it to raise interest rates at least one more time, before likely taking a pause.

It has been raising rates at every one of its meetings for more than a year, sometimes by double or triple the typical amount. Its overnight rate now sits in a range of 4.75% to 5%, up from virtually zero at the start of last year.

Many traders are betting the Fed will have to cut interest rates later this year in order to prop up the economy. But the Fed has so far been insistent that it will hold rates high at least through the end of this year. Inflation remains too high for its liking, even if it has come down from its peak last summer.

“The Fed seems determined to fight inflation even if a more significant slowdown arrives,” Morgan Stanley strategists led by Michael Wilson wrote in a report.

High rates have already caused cracks in the banking system, with the second- and third-largest US. bank failures in history rocking markets last month. The worst of the crisis seems to have passed, but scrutiny remains harsh on smaller and mid-sized banks that seem to be under the most threat of seeing customers yank their deposits.

First Republic Bank, which has been at the center of the spotlight, will report its latest quarterly results after trading closes Monday. Its stock jumped 10.1% before the report, making it the biggest gainer in the S&P 500.

The banking industry’s struggles were global, as higher interest rates worldwide pushed investors to hunt for potential weak links. Credit Suisse, a giant investment bank, said Monday that it saw more than 61 billion Swiss francs (nearly $69 billion) in outflows during the first three months of the year. It’s in the process of getting swallowed by rival UBS after regulators arranged for its takeover.

Stock indexes across Europe and Asia were mixed to modestly lower.

In the bond market, the yield on the 10-year Treasury fell to 3.51% from 3.57% late Friday.

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AP Business Writer Joe McDonald contributed.