NEW YORK (AP) — Wall Street is drifting Monday ahead of a week full of reports on some of the market's biggest worries, including how stubbornly high inflation remains across the economy.
The S&P 500 was 0.1% lower in midday trading, coming off its worst week in nearly two months. The Dow Jones Industrial Average was down by 99 points, or 0.3%, at 33,575, as of 11:30 a.m. Eastern time, while the Nasdaq composite was 0.3% lower.
Besides a strong reading on U.S. jobs, which calmed worries about a possible recession but raised concerns about high inflation, last week was dominated by fears about smaller and mid-sized banks. They were stabilizing Monday.
PacWest Bancorp rose 2.9% to recover some of its steep 43% plunge last week. It said on Friday night that it’s cutting its dividend to help it build its financial strength. Several other smaller- and mid-sized banks also rose. Western Alliance Bancorp was 0.1% higher after drifting down from a bigger morning gain.
They’ve been under heavy pressure as Wall Street hunts for the next weak link following the failures of three U.S. banks since March. Weighed down by much higher interest rates, banks are scrambling to assure Wall Street their deposits are secure and not at threat of seeing a sudden exodus, similar to the runs that toppled Silicon Valley Bank and others.
The larger concern for markets is that all the turmoil for banks could cause them to pull back on their lending. That in turn could mean businesses get fewer opportunities to grow and households face more financial pressure, raising the risk of a recession that many investors already see as highly likely.
The Federal Reserve later on Monday will offer more details on the banking system when it releases the results of its quarterly survey of senior loan officers. It will show whether banks are indeed making it tougher for borrowers to get loans.
Weighing down on Wall Street were stocks of companies that turned in worse results for the latest quarter than expected.
Tyson Foods tumbled 16.1% after it reported a loss, instead of the profit that analysts had forecast. Its revenue also fell short of expectations.
Catalent dropped 26.8% after it delayed the release of its results for the latest quarter. The company said it had found some “potential non-cash adjustments” related to one of its faciliites in Bloomington, Indiana, which needs more time to review.
So far this earnings reporting season, the trend has been to beat analysts' forecasts. Apple was last week's highlight, and its better-than-expected report helped the market immensely because its stock is Wall Street’s largest and packs the most weight on the S&P 500 and other indexes.
Six Flags Entertainment jumped 21.5% Monday after it reported a loss that wasn't as bad as analysts expected. It also said attendance was improving.
Expectations were broadly quite low, though, given high interest rates and a slowing economy. Like Apple, companies across the S&P 500 are on track to report a drop in profit for the latest quarter versus a year earlier. Nearly 80% of companies in the index have reported, and they’re on pace for a 2.2% decline, versus expectations for a 6.7% drop, according to FactSet.
In an encouraging signal, more companies than usual have been offering forecasts for upcoming results above Wall Street’s expectations. The ratio of such pre-announcements is at its strongest 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’s helped to steady stocks despite all the worries about much higher interest rates. The S&P 500 has been roughly churning in place since early April. It hasn’t had a weekly gain or loss of at least 1% since March, its longest stretch in nearly two years, said Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley.
The Federal Reserve has catapulted its benchmark interest rate to a range of 5% to 5.25%, up from virtually zero early last year, in hopes of slowing high inflation. High rates do that by slowing the economy and hurting prices for investments, which runs the risk of causing a recession if they stay too high for too long.
The Fed said last week that it’s not sure of its next move, as swaths of the economy have shown sharp slowdowns but the job market remains largely resilient.
Also hanging over the economy is the threat of a default by the U.S. government on its debt. If Congress doesn’t allow the federal government to increase its maximum limit for borrowing, a default could happen as quickly as June 1.
Such an event would rock financial markets because U.S. Treasurys are seen as 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 an economic “calamity” if Congress fails to raise the nation’s borrowing limit of $31.381 trillion in the coming weeks.
In the bond market, the yield on the 10-year Treasury rose to 3.49% from 3.44% late Friday. It helps set rates for mortgages and other important loans.
The two-year Treasury, which moves more on expectations for Fed action, rose to 3.94% from 3.92%.
Later this week, the U.S. government will give the latest monthly updates on inflation at the consumer and wholesale levels. Earnings reports will also arrive from Duke Energy, The Walt Disney Co. and News Corp.
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AP Business Writers Elaine Kurtenbach and Matt Ott contributed.
