Wall Street slips and cuts profits for a week

Expectations for this earnings reporting season were particularly low. Analysts predicted the sharpest drop in earnings per share for S&P 500 companies since the pandemic torpedoed the global economy in 2020. Earnings are under pressure as inflation is high, interest rates are much higher than a year ago and parts of the economy are slowing.

Still, the easy expectations mean that most companies have beaten forecasts, as is usually the case.

That’s part of why the market has been a little rudderless lately, said Megan Horneman, chief investment officer at Verdence Capital Advisors. We got mixed earnings, but not as bad as people expected.

Intuitive Surgical rose 11.6% for the biggest gain in the S&P 500 after stronger-than-expected earnings and revenue for the final quarter.

Abbot Laboratories rose 7.2%, Nasdaq Inc. gained 3.2% and United Airlines soared 4.4% after also beating Wall Street earnings estimates.

Particular attention was paid to the health of banks, after higher interest rates led to the second and third largest bank failures in US history last month.

The industry giants have largely reported better-than-expected results, with several saying they benefited from the industry turmoil as customers moved deposits to them and away from smaller banks that appeared to be at greater risk.

The fear was how much pain smaller, regional banks would show in their quarterly reports, including how many of their customers had fled.

Western Alliance Bancorp., a Phoenix-based bank whose shares fell nearly 64% over a five-day period last month, rose sharply after it said deposits stabilized after an initial decline and have risen in recent weeks. The stock rose by 13.9%.

Other financial companies were mixed after their earnings reports.

Citizens Financial Group fell 2.8% after earnings and revenue fell below expectations. Synchrony Financial rose 1% after better-than-expected revenue but weaker earnings. Morgan Stanley fell 0.6% despite excellent forecasts for both profit and revenue.

High-growth and technology stocks generally weighed on the market. They suffered in part from higher bond market yields, which rose after a report showed UK inflation remained above 10% for the seventh consecutive month.

Central banks around the world have been raising interest rates at a breakneck pace for more than a year, and the general expectation is that the Federal Reserve will raise short-term interest rates in the US again next month. High rates can quell inflation, but only by slowing down the entire economy, increasing the risk of a recession and hurting investment prices.

Another fear is that smaller and medium-sized banks could withdraw their lending amid all the problems in the sector, which would put the brakes on the economy even more. That’s something that could reverberate through the system later this year, Horneman said.

When I look at economic growth, there are so many components of economic growth that scream that they were in a recession or headed that way, she said.

She is preparing for more stock market turbulence and expects interest rates to remain high through the end of the year, despite traders’ forecasts of interest rate cuts.

In the bond market, the yield on the 10-year Treasury rose to 3.63% from 3.58% at the end of Tuesday. The yield on two-year government bonds, which is more in line with expectations for the Fed, rose from 4.20% to 4.27%.

In overseas markets, equity indices in Europe were mixed. Asian equities tended to be lower.

An earlier report showing that China’s economic growth accelerated in the last quarter did not have much impact on stock prices. While consumption and retail sales have grown, other indicators, such as industrial production and fixed investment, have been weaker and point to an uneven recovery.

It may still be a worst-is-over story, but the recovery has proven to be more gradual than a one-time miracle, Yeap Jun Rong, a market analyst at IG, said in a report.

AP Business Writers Yuri Kageyama and Matt Ott contributed.