Wall Street is stabilizing as banks are stabilizing

The bigger concern for the markets is that any unrest could lead to banks pulling back on lending. That, in turn, could increase the risk of a recession that many investors already consider very likely.

A report from the Federal Reserve on Monday showed that many banks tightened their lending standards during the first three months of the year. Not only that, the research suggested that banks generally expect to raise their standards over the course of 2023. One of the reasons some smaller and medium-sized banks gave for the forecast was that they wanted to take on less risk and were concerned about deposit outflows.

On Monday on Wall Street, the shares of companies that posted worse-than-expected results in the last quarter were depressed.

Tyson Foods plummeted 16.4% after reporting a loss, rather than the profit analysts had predicted. Turnover also fell short of expectations.

So far this season, the trend for data reporting has been to beat analysts’ forecasts. Apple was last week’s high, and its better-than-expected report helped the market immensely, as its stock is the largest on Wall Street and has the most weight in the S&P 500 and other indices.

Six Flags Entertainment rose 18.6% on Monday after it reported a loss that was not as bad as analysts had expected. It also said attendance was improving.

However, expectations were generally quite low given high interest rates and a slowing economy. Like Apple, companies in the S&P 500 are on track to report earnings declines for the last quarter from a year earlier.

In an encouraging signal, more companies than usual have made predictions for upcoming results that are above Wall Street’s expectations. The ratio of such pre-announcements is at its highest level in two years, equity strategist Savita Subramanian said in a BofA Global Research report, and analysts expect earnings growth to resume in the third quarter of this year.

That has helped keep the stock stable despite all the concerns about much higher interest rates. The S&P 500 has been churning roughly since early April. It has not had a weekly gain or loss of at least 1% since March, the longest stretch in nearly two years, said Chris Larkin, general manager, trading and investing, at Morgan Stanley’s E-Trade.

The Federal Reserve has raised its benchmark interest rate to a range of 5% to 5.25%, from near zero at the beginning of last year, in hopes of slowing high inflation. High rates do that by slowing the economy and hurting prices for investments, risking a recession if they stay too high for too long.

The Fed said last week it is unsure of its next move as parts of the economy have shown sharp slowdowns, but the labor market remains largely resilient.

Also hanging over the economy is the threat of default by the US government on its debts.

Such an event would rock the financial markets as US Treasuries are considered the safest possible investment in the world. Treasury Secretary Janet Yellen said on ABC’s This Week on Sunday that there are no good options for the United States to avoid economic disaster if Congress fails to raise the $31.381 trillion borrowing limit in the coming weeks.

In the bond market, the yield on the 10-year Treasury rose to 3.51% from 3.44% at the end of Friday. It helps set rates for mortgages and other important loans.

The two-year Treasury bond, which moves more based on expectations for Fed action, rose from 3.92% to 3.99%.

Later this week, the US government will provide the latest monthly updates on consumer and wholesale inflation. There will also be earnings reports from Duke Energy, The Walt Disney Co. and News Corp.

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AP Business Writers Elaine Kurtenbach and Matt Ott contributed.