U.S. stocks fell early Monday afternoon as bond yields hit three-year highs on expectations of aggressive monetary policy tightening, while financials rose after Bank of America supplemented the profits of the big Wall Street banks with a gain in profit.
Market participants are bracing for a barrage of earnings this week that will help them gauge the impact of war in Ukraine and a spike in inflation on corporate finances.
The broader S&P 500 Banks Index rose 1.2%, led by a 3% gain in shares of Bank of America Corp.
The second-largest U.S. bank by assets saw strong growth in its consumer finance business, although its investment banking unit was hit by a slowdown in transactions.
“The earnings season so far has lived up to expectations,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“There have been some negative indications but, overall, it looks like American businesses are able to live with higher inflation and a higher cost of money.”
Market reaction to bank earnings was mixed as JPMorgan Chase & Co, Goldman Sachs Group and Citigroup set aside $3.36 billion to cover loan losses from war risks in Ukraine and the rise in inflation.
Earnings from Netflix, Tesla, Johnson & Johnson and International Business Machines will be in the spotlight as they are expected to report later this week.
Megacap shares such as Apple and Amazon.com fell as the benchmark 10-year Treasury yield climbed to 2.850%, after hitting 2.884% earlier on Monday, the highest since December 2018.
Shares of market-leading technology and growth companies have recently come under pressure as expectations of a series of interest rate hikes threaten to erode their future earnings.
Tesla, however, rose 1.2% as it prepares to reopen its Shanghai factory after a nearly three-week Covid shutdown.
Eight of the 11 major S&P sectors were down. Defensive health care fell more than 1% after hitting record highs this month amid concerns about slowing economic growth.
Energy stocks rose 0.9% as crude prices rose and Brent rose above $113 a barrel, as outages in Libya heightened worries about tight global supply.
Overall, trading volumes were weak after the Easter holiday, with European markets remaining closed on Monday.
Charles Schwab fell 8.6% after the financial services company missed quarterly profit estimates.
Twitter rose 4.8% as the microblogging platform adopted the ‘poison pill’ on Friday to prevent Tesla Chief Executive Elon Musk from increasing his stake beyond 15% during a one year period.
Didi Global Inc fell 13.8% after the Chinese running giant said it would hold an extraordinary general meeting on May 23 to vote on its U.S. delisting plans. – Reuters