Stock Market Today: Stocks Tumble on Gains, Concerns About the Economy

NEW YORK (AP) Wall Street plummeted to its worst day in a month on Tuesday on concerns about the strength of corporate earnings and the economy after some mixed reports.

The S&P 500 fell 1.6% to break out of a weeks-long lull. The Dow Jones Industrial Average fell nearly 345 points, or 1%, while the Nasdaq composite fell 2%.

First Republic Bank suffered by far the biggest loss in the S&P 500 and its stock almost halved after it said customers had withdrawn more than $100 billion in the first three months of the year. That excludes $30 billion in deposits that major banks made to build confidence in their rival after the second- and third-largest U.S. bank failures in history shook confidence.

The magnitude of the decline in deposits led to renewed concerns about the US banking system and the risk of an economic slowdown in lending. That overshadowed First Republics beating analyst earnings expectations, and the stock fell 49.4%.

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 WAS LESS

UPS fell 10% 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.

Danaher was another big weight in the market, falling 8.8% despite better-than-expected earnings and earnings. Analysts pointed out that it downgraded its forecast for a key revenue metric during the year.

On the winning side, PepsiCo rose 2.3% after beating earnings expectations. Homebuilder PulteGroup rose 1.7% after also better than forecast.

TECH INCOME

The heart of the earnings reporting season is approaching and more heavy hitters arrived after trading closed for the day.

Microsoft and Google’s parent company Alphabet both rose in after-hours trading after earnings beat expectations. 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 had made only modest moves so far this earnings reporting season. The S&P 500 barely budged last week, trading just 0.1% on Monday. But volatility strategists at Barclays said calm was unlikely to last long-term.

The economy is under pressure from high interest rates designed to control inflation. High rates can suppress inflation, 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.

ECONOMIC CONCERNS

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 separate 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 Fed’s barrage of rate hikes 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.

All told, the S&P 500 fell 65.41 points to 4,071.63. The Dow Jones fell 344.57 to 33,530.83 and the Nasdaq fell 238.05 to 11,799.16.

In the bond market, the yield on the 10-year Treasury fell from 3.50% late Monday to 3.39%. 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 3.95%.

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.