U.S. stocks edge lower as investors brace for big earnings week

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All three major stock indexes slipped Monday afternoon in choppy trade, with U.S. investors returning from a three-day weekend as earnings season prepared to move into full swing and uncertainty rose over the economic outlook.

How are stocks trading?
  • The Dow Jones Industrial Average
    DJIA
    fell 111 points, or 0.3%, t0 34,341.

  • The S&P 500
    SPX
    slipped 16 points, or 0.4%, to 4,377.

  • The Nasdaq Composite
    COMP
    was down 91 points, or 0.7%, at 13,260.

The S&P 500 and Nasdaq Composite each saw the second straight weeks of losses, down 2.1% and 2.6%, respectively, while the Dow fell 0.8% in a third-straight weekly drop. U.S. and European markets were closed for Good Friday, while major European bourses remained shut Monday.

See: Why consider the Dow transports when they point to a slowing economy? Because these 7 stocks are cheap

What’s driving the markets?

Investors remain concerned about rising inflation and how that may weigh on the economy, as the Federal Reserve struggles to keep a lid on rising prices. Goldman Sachs’s chief economist Jan Hatzius and his team predicted the U.S. economy faces a 35% chance of recession in the next two years, and 15% over the next year.

“The main challenge for the Fed will be to reduce the jobs-workers gap and slow wage growth to a pace consistent with its inflation goal by tightening financial conditions enough to reduce job openings without sharply raising unemployment,” Hatzius and others wrote in a note released Sunday. They added that “history suggests this may be challenging.”

Treasury yields have marched higher in response to surging inflation, with the 10-year rate
BX:TMUBMUSD10Y
briefly topping 2.85% for the first time since late 2018 early Monday before pulling back. Yields and debt prices move opposite each other.

The rise in yields has been a headwind for tech and other growth shares whose often lofty valuations are based on earnings and cash flow far in the futures. A higher rate on risk-free Treasurys reduces the present value of those future flows.

“What we know now is that the rise in U.S. Treasury yields is harming risk and we can see it in most asset classes including tech stocks, consumer cyclicals, and even digital currencies and NFTs,” said Hussein Sayed, chief market strategist at Exinity, in a note. “Such tough times may bring long term opportunities as valuations come down to earth, however we’re still far away from cheap valuations when it comes to growth stocks.”

Meanwhile, defensive sectors that tend to outperform the market in such times — utilities, consumer staples and health care — are all posting solid gains for the month. “So, if an investor is in the recession camp, these are the sectors that they are likely to be overweight in,” Sayed wrote.

Read: Recession fears and the stock market — is it too late to play defense?

The National Association of Home Builders said its monthly confidence index fell two points from the previous month to a reading of 77 in April and remains at the lowest level since September.

Comments were expected from St. Louis Fed President James Bullard later in the day.

China’s economy expanded 4.8% annually in the first quarter, which beat expectations. That still puts the country behind scheduled to reach an official target of 5.5% growth this year, with fresh COVID outbreaks not helping.

Earnings were in focus for Monday as well, with Bank of America Corp.
BAC
among the highlights. The bank said its quarterly profit fell by $1 billion, but the financial giant beat Wall Street’s earnings targets and booked healthy loan growth. Shares rose 3.1%.

Results were due from Netflix Inc. 
NFLX
on Tuesday afternoon and Tesla Inc. 
TSLA
 on Wednesday afternoon. Eyes will also be on Twitter Inc. 
TWTR,
 which announced on Friday that it had adopted a “poison pill” in the face of a takeover bid by Elon Musk.

Crude prices were declining, but natural-gas futures
NGK22
shot higher, up around 9% to $7.959 per million British thermal units.

Read: U.S. natural gas is trading at an ‘insane’ price — Here’s why it just hit a nearly 14-year high

Which companies are in focus?
  • Shares of Charles Schwab Corp.
    SCHW
    fell 8.4% after the broker fell short of Wall Street expectations, reporting a 6% drop in net income.

  • Didi Global Inc.
    DIDI
    shares tumbled more than 14%. The China ride-share giant, which is facing a cybersecurity probe in Japa, said over the weekend that it will hold an extraordinary general meeting on May 23 to vote on a planned delisting from the New York Stock Exchange. The company reported a fall in fourth-quarter earnings.

What are other assets doing?
  • The ICE U.S. Dollar Index
    DXY,
    a measure of the currency against a basket of six major rivals, was up 0.4%.

  • Bitcoin
    BTCUSD
    was down 2.6% to trade below $39,240.

  • Gold futures
    GC00
    rose 0.9% to trade near $1,992.40 an ounce.

  • Most European markets are closed for the Easter Monday holiday.

  • The Shanghai Composite
    CN:SHCOMP
    finished down by 0.5%, while Japan’s Nikkei 225
    JP:NIK
    lost 1.1%.

Barbara Kollmeyer and Mike Murphy contributed to this article

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