By Bansari Mayur Kamdar and Johann M Cherian
(Reuters) -Wall Street was set to open lower on Tuesday as investors digested more earnings reports from top lenders including Morgan Stanley and Bank of America, after the markets rallied last week in anticipation of the results and signs of inflation cooling.
Bank of America edged lower in volatile premarket trading though the lender posted a 20% surge in second-quarter profit, and Morgan Stanley slid after a drop in its quarterly profit as dealmaking and trading in stocks and bonds slumped.
"The markets and the sectors have gotten ahead of themselves and probably some digestion of gains is necessary," said Sam Stovall, chief Investment strategist at CFRA Research, New York.
"Most of the major banks have reported so now the question is what about smaller banks because the smaller banks are more lending focused and as a result of the inverted yield curve, they might not have the kind of net interest income strength."
Some of the largest U.S. banks, including JPMorgan Chase and Wells Fargo, said on Friday they got a profit boost from higher rates, pointing towards a resilient economy.
Bank of New York Mellon fell 0.7% even as the lender posted upbeat quarterly earnings, while PNC Financial Services shed 3.1% after it lowered its forecast for full-year net interest income (NII).
The S&P 500 banks index has fallen 5.2% so far this year, underperforming the S&P 500 index which has notched a 17.8% gain after the biggest banking crisis since 2008 earlier this year took down three lenders and pummeled the sector.
Lockheed Martin added 1.0% after the weapons maker raised its annual profit and sales outlook on strong demand for military equipment, stoked by ongoing geopolitical uncertainties.
Overall earnings across industries are expected to decline 8.1% for the quarter, according to Refinitiv data.
At 8:38 a.m. ET, Dow e-minis were down 11 points, or 0.03%, S&P 500 e-minis were down 3.5 points, or 0.08%, and Nasdaq 100 e-minis were down 24.5 points, or 0.15%.
Wall Street rallied last week after consumer prices and producer prices data provided evidence that the economy had entered a disinflation phase, stoking hopes that the U.S. Federal Reserve will soon end its monetary policy tightening.
Meanwhile, domestic retail sales, reported on Tuesday, rose less than expected in June, though consumer spending appeared to be solid, which likely kept the economy afloat in the second quarter.
Pinterest gained 3.3% as Evercore ISI upgraded its rating on the stock to "outperform" and Marvell Technology climbed 1.1% after Bank of America added the chipmaker to its U.S. No.1 list.
(Reporting by Bansari Mayur Kamdar and Johann M Cherian in Bengaluru; Editing by Nivedita Bhattacharjee and Shinjini Ganguli)
