U.S. stocks continue to struggle for direction as investors await earnings and Wednesday’s Fed decision


U.S. stocks flipped between modest gains and losses into Monday afternoon as investors contemplated a week stuffed with monster earnings and a Federal Reserve policy meeting that’s expected to deliver another outsize rate hike.

How stocks are trading
  • The Dow Jones Industrial Average
    DJIA,
    +0.03%
    rose 24 points, or less than 0.1%, to 31,923.

  • The S&P 500
    SPX,
    -0.10%
    fell 2 points, or less than 0.1%, to 3,960.

  • The Nasdaq Composite
    COMP,
    -0.62%
    shed 64 points, or 0.5%, to 11,770.

Last week, the Dow rose 2%, while the S&P 500 gained 2.6% and the Nasdaq Composite advanced 3.3%.

What’s driving markets

Traders generally held steady on Monday and appeared reluctant to build bold positions before a big batch of corporate earnings, which could shape market sentiment in the short term.

For the new week, there will be 175 S&P 500 companies reporting, including big beasts like Apple
AAPL,
-0.62%,
Alphabet
GOOGL,
-0.77%,
Microsoft
MSFT,
-0.85%
and Amazon
AMZN,
-1.35%,
though the action doesn’t pick up again until Tuesday.

“Earnings optimism is overshadowing recession fears that dragged stocks lower on Friday,” said  Fiona Cincotta, senior financial markets analyst at City Index.

The S&P 500 was down 16.9% for the year to date through Friday but had climbed 8% from the 52-week low it hit in mid-June, with sentiment underpinned of late by a corporate reporting season that has proved better than some had feared.

See: Bear-market bottom for U.S. stocks? What the pros say as S&P 500 tests 4,000

With 21% of S&P 500 companies having reported, the second quarter blended earnings growth rate for the benchmark index is 4.8%, according to John Butters, senior earnings analyst at FactSet.

“If 4.8% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q4 2020 (4.0%),” Butters said. However, “68% of S&P 500 companies have reported a positive EPS surprise and 65% of S&P 500 companies have reported a positive revenue surprise,” he added.

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The market’s forward 12-month P/E ratio is 16.7, below the 10-year average of 17.0, according to FactSet, a pullback that is supporting valuations.

Earnings Watch: Here are 5 things we’ve learned since second-quarter earnings season kicked off

See also: Big Tech earnings are about to determine the direction of the market and These 20 stocks still have at least 48% upside, analysts say, despite the S&P 500’s 8% gain from its lows

The looming Federal Reserve rate decision on Wednesday provided another reason for caution. The central bank is expected to raise borrowing costs by 75 basis points to a range of 2.25% to 2.50%, but investors will be keen to hear about how the Fed sees the pace of future hikes.

“The pace of hikes remains uncertain as we get into the fall. If labor market data starts to soften we can expect the Fed’s attention to once again switch to its dual mandate. But if inflation remains stubbornly high, then the Fed may continue to hike even if a recession is imminent,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

“This uncertainty is likely to keep volatility elevated. The stock market is likely to remain range bound until the Fed pivots, or we get a reacceleration in business activity,” Marcelli wrote in a note.

Read: Will the Federal Reserve snuff out a stock-market bounce? What investors will be watching.

Companies in focus
  • Around 2,500 Boeing Co.
    BA,
    -1.02%
    workers were expected to go on strike Aug. 1 at three plants in the St. Louis area after they voted to reject a contract offer from the plane maker. Boeing shares fell 1.3%.

  • Newmont Corp.
    NEM,
    -13.95%
    shares slumped 12.2% after the gold miner reported second-quarter profit that fell well short of expectations.

  • Shares of Weber Inc.
    WEBR,
    -14.65%
    tumbled 14.3% after the grill maker issued a sales warning for its third quarter and announced the departure of its chief executive, Chris Scherzinger.

  • Tesla Inc.
    TSLA,
    -0.84%
    disclosed in its latest 10-Q filing Monday that it received a second subpoena from the Securities and Exchange Commission asking the company to provide information on its “governance processes around compliance with the SEC settlement” related to Chief Executive Elon Musk’s 2018 tweet about taking the company private at $420 a share. Tesla shares were off 0.6%.

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See: Elon Musk denies alleged affair with Google co-founder Sergey Brin’s wife as ‘total bs’

How other assets are faring
  • The 10-year Treasury yield BX:TMUBMUSD10Y rose 4 basis points to 2.82%. Yields and debt prices move opposite each other.

  • The ICE U.S. Dollar index DXY fell 0.2%.

  • U.S. crude futures
    CL.1,
    +2.06%
    rose 1.9% to trade near $96.45 a barrel.

  • August gold settled at $1,719.10 an ounce, down $8.30, or 0.5%.

  • Bitcoin BTCUSD fell 3.6% to trade near $21,942.

  • Hong Kong’s Hang Seng
    HSI,
    -0.22%
    ended 0.2% lower, while the Shanghai Composite
    SHCOMP,
    -0.60%
    shed 0.6% and Japan’s Nikkei 225
    NIK,
    -0.77%
    ended with a drop of 0.8%. In Europe, the Stoxx 600
    SXXP,
    +0.13%
    finished 0.1% higher, while London’s FTSE 100
    UKX,
    +0.41%
    ended up by 0.4%.

— Jamie Chisholm contributed to this article.



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