Wall Street rally fades as corporate earnings reports rise

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FILE – The New York Stock Exchange on Wednesday, June 29, 2022 in New York. Stocks open broadly higher Friday, July 15, 2022 on Wall Street, but not enough to erase their losses for the week. (AP Photo/Julia Nikhinson, File)

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Shares closed lower on Wall Street on Monday after an early gain evaporated in the afternoon. The choppy trading came at the start of another busy week for US corporate earnings reports. The S&P 500 fell 0.8%. The Dow fell 0.7% and the Nasdaq lost 0.8%. Gains by energy producers, large retailers and other companies that rely on consumer spending were offset by declines in healthcare and technology stocks. Goldman Sachs rallied after reporting better-than-expected earnings. Dozens of big companies will give updates this week on their spring profits.

THIS IS A BREAKING NEWS UPDATE. AP’s previous story follows below.

Wall Street stock indices lost early gains and fell in afternoon trade on Monday, a choppy start to a week full of updates on the two things that set stock prices: how many profits companies are making and where interest rates are heading.

The S&P 500 fell 0.7% after rising 1% at the start. The index broke a five-day losing streak late last week. Gains by energy producers, large retailers and other companies that rely on consumer spending were offset by declines in healthcare and technology stocks. Goldman Sachs rose after reporting better-than-expected spring earnings.

The Dow Jones Industrial Average was down 174 points, or 0.5%, at 31,120 as of 3:32 p.m. EST, and the Nasdaq composite was down 0.7%.

Markets have mostly been falling for weeks on fears that the Federal Reserve and other central banks around the world are putting the brakes on the economy too hard in hopes of bringing down high inflation. If they are too aggressive in their interest rate hikes, they could cause a recession.

But some on Wall Street see signs of at least temporary optimism. Oil prices slipped off their highs, although U.S. crude rose 5.1% on Monday. A key report released last week also indicated that inflation expectations are falling among households. This could prevent a vicious circle from taking root and ease the pressure on the Federal Reserve.

Expectations about how aggressively the Federal Reserve will raise interest rates at its meeting next week have diminished. Traders are now betting on roughly a one in three chance of a monstrous full percentage point rise, with the majority favoring a 0.75 percentage point rise. As recently as Thursday, the big bet was on a full point hike.

Economists at Goldman Sachs are among those forecasting a 0.75 point increase, which would match last month’s rise, instead of a more aggressive rise. They cited in particular the easing of inflation expectations after Chairman Jerome Powell said last month that the Fed was paying close attention.

Across the Atlantic Ocean later this week, investors expect the European Central Bank to raise interest rates for the first time in 11 years on Thursday to fight inflation. Many investors expect a 0.25 percentage point increase, “but more is not unthinkable,” the economists wrote in a BofA Global Research report.

Interest rates are one of the two main levers that set stock prices. The other is corporate earnings, which are at risk given high inflation and slowdowns in parts of the economy. For now, at least, analysts still expect continued growth.

Earnings season kicked off last week and banks dominated the first part of the calendar to report how much they earned from April to June.

Goldman Sachs was among the last to report, and it rose 2% after its earnings and revenue beat analysts’ expectations. Synchrony Financial rose 0.4% after also beating profit and revenue forecasts.

Bank of America gained 0.1% even though it fell short of analysts’ earnings expectations. Despite all the worries about a possible recession, Bank of America said spending and customer deposits remained strong.

IBM is set to release its results after the close of trading for the day. Johnson & Johnson, American Airlines and Tesla are among dozens of S&P 500 companies expected to follow later in the week.

In overseas markets, Hong Kong’s Hang Seng Index jumped 2.7% after Chinese media reported that some stalled property projects had resumed construction after buyers threatened to halt mortgage payments. Shanghai shares gained 1.6%.

Equities also rose across much of the rest of Asia and Europe, with the German DAX posting a return of 0.7%.

In the bond market, the 10-year Treasury yield slipped to 2.95% from 2.96% Friday night. The two-year yield, which rose to 3.17%, is still above the 10-year yield. Some investors see this as a worrying sign that could portend a recession in a year or two.

Concerns about a recession have been underscored by recent reports showing slowdowns in parts of the economy due to Fed rate hikes.

The housing market, in particular, felt the impact of higher mortgage rates. A measure of homebuilder sentiment released on Monday weakened more than economists expected and fell to its lowest level in more than two years.

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AP Business Writer Elaine Kurtenbach contributed.