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NEW YORK (AP) Wall Street slumped Tuesday after a deluge of companies released mixed earnings reports for the first three months of the year.
The S&P 500 was down 0.9% in afternoon trading. The Dow Jones Industrial Average was down 165 points, or 0.5%, to 33,710 at 12:35 a.m. Eastern Time, while the Nasdaq composite was down 1.3%.
First Republic Bank fell 28.7% for the biggest loss in the S&P 500 after it said customers took more than $100 billion in deposits in the first quarter. That doesn’t include the $30 billion major banks have been plugging in to build confidence in their rival after the second- and third-biggest U.S. bank failures in history shook confidence.
The magnitude of the drop in deposits overshadowed First Republics beating analyst earnings expectations at the start of the year.
Most companies have beat expectations so far this reporting season, but the bar has been set pretty low. Analysts are predicting the worst drop in S&P 500 earnings since spring 2020, when the pandemic froze the global economy. That’s why Wall Street is as much, if not more, focused on what companies say about their future prospects as they have been on the past three months.
WHY UPS IS LESS
UPS fell 9.3% after meeting earnings forecasts, but said it had less revenue than expected. It also said full-year earnings are likely to come in at the lower end of previous forecasts, citing a challenging economy and other factors.
GE Healthcare Technologies was down 8.7% and Danaher was down 6.2% despite both reporting better-than-expected earnings and earnings.
On the winning side, PepsiCo rose 2.3% after beating earnings expectations. Homebuilder PulteGroup rose 1.8% after also beating forecasts.
TECH INCOME
The heart of the earnings reporting season is approaching and more heavy hitters are arriving after trading closes for the day.
Microsoft and Google’s parent company, Alphabet, are both on the schedule. Because they are two of the largest companies on Wall Street by market capitalization, their stock movements weigh extra heavily on the S&P 500 and other market indices.
Broad stock indices have made only modest moves so far this season of earnings reporting. The S&P 500 barely budged last week, trading just 0.1% on Monday. But according to volatility strategists at Barclays, the calm is unlikely to last long term.
The economy is under pressure from high interest rates designed to control inflation. High rates can do that, but only by slowing down the entire economy and hurting investment prices. Large parts of the economy outside the labor market are already slowing or shrinking.
With so much uncertainty about whether inflation can return to the Federal Reserve’s target without triggering a recession, “we remain skeptical that markets are out of the woods,” Barclays strategists led by Stefano Pascale said in a report. They also pointed to the risk of something breaking in the financial system due to the high rates.
A report on Tuesday showed consumer confidence fell more than expected in April, to the lowest level since July. That’s a discouraging signal when consumer spending makes up the bulk of the U.S. economy.
A second report was more encouraging, saying new home sales rose more than expected. The housing market is under pressure because the higher mortgage interest is putting buyers under pressure.
On Thursday, the US will publish its first estimate of economic growth in the first three months of the year. Economists expect growth to cool to 1.9% year-on-year, down from 2.6% at the end of 2022.
Much of the slowdown is due to the wave of rate hikes by the Fed over the past year. The Federal Reserve meets next week and much of Wall Street expects it to raise interest rates at least one more time before pausing.
In addition to higher interest rates, Wall Street is also concerned that the problems of the US banking sector could put the brakes on the economy even further. First Republic said its deposits have stabilized since late March, but it is still working on cost cutting. If it and other banks pull back on lending, it could lead to lower growth across the economy.
In the bond market, the yield on the 10-year Treasury fell from 3.50% late Monday to 3.43%. It helps set rates for mortgages and other important loans.
The two-year rate, which moves more based on expectations for Fed action, fell from 4.11% to 4.06%.
In overseas markets, stock indices closed mostly lower in Europe and were mixed overnight in Asia.
AP Business Writers Joe McDonald and Matt Ott contributed.
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