S&P 500 flat, Nasdaq wavers as investors digest mixed earnings from Morgan Stanley, Netflix

By Isabel Wang and Frances Yue

U.S. stocks traded mixed on Wednesday as investors weighed another batch of U.S. earnings, including results from Morgan Stanley, U.S. Bancorp, and Phoenix, Arizona-headquartered regional bank Western Alliance, while global government bonds yields rose after the U.K. posted hotter-than-expected inflation.

How are stock indexes trading

On Tuesday, stocks struggled for direction, with the Dow falling 11 points, the S&P 500 eking out a 0.1% gain, and the Nasdaq Composite posting a marginal decline.

What’s driving markets

U.S. stock traded mixed on Wednesday as sticky double-digit inflation in the U.K sparked selling of government bonds.

U.K. inflation in March slowed to 10.1% year-over-year, down from 10.4% in the previous month, and the core inflation stayed at 6.2%, the Office for National Statistics reported on Wednesday. Economists polled by Reuters expected inflation to ease to 9.8%.

“The March inflation figures were a big surprise to us, the consensus and the Monetary Policy Committee (MPC)’s own forecasts,” said a team of economists led by Matthew Swannell at BNP Paribas.

“The MPC’s forward guidance requires evidence of more persistent inflationary pressures to justify further hiking, and we think the fact that services inflation — a key barometer of domestically-generated inflation — remained stable at 6.6%, satisfies this condition,” said economists at BNP Paribas, in a Wednesday note.

See:U.K. inflation shock sparks fear U.S. markets will get caught off guard again

The hot double-digit inflation in the U.K. sends its bond yields higher on Wednesday with the yield on the 2-year gilt TMBMKGB-02Y, 3.808% rising 13 basis points to 3.81%.

“You’ve got sovereign yields up across the world and that generally causes a risk-off mood in the equity markets,” Tavis McCourt, managing director of institutional equity strategy at Raymond James, said in a call.

Meanwhile, the yield on the U.S. 2-year Treasury note climbed 5 basis points to 4.25%, according to Dow Jones Market data.

Still, with markets seemingly more relaxed of late about the trajectory of U.S. interest rates — the chances of the Federal Reserve increasing borrowing costs by 25 basis points in two weeks time is priced at 88% — attention currently is more focused on company profits.

Results from the U.S.’s first quarter corporate earnings season are mixed so far, while major banks that have reported earnings mostly surprised the market to the upside, particularly regarding their revenue in fixed income, currency and commodity trading, noted Andy Kapyrin, co-chief investment officer at CI RegentAtlantic Private Wealth.

Investors have been paying particular attention to the banking sector after several banks, including Silicon Valley Bank, collapsed last month.

Traders are also eyeing the performances of megacap technology companies, partly due to the size of the market share they represent. Meanwhile, “I think this is the first economic cycle that some of these large tech firms have experienced where the secular trends that they are back aren’t enough to overcome some of the cyclical trends that could inhibit their growth,” according to Kapyrin.

The mixed start of earnings season has left stocks struggling to extend their recent rally. The S&P 500 remains stuck within, though near the top, of the 3,800 to 4,200 range it has inhabited for about five months.

Minimal moves and a more relaxed mood saw the CboeVIX index , a gauge of expected stock market volatility close below 17 on Tuesday, its lowest since January 2022.

See: Why this stock-market gauge contradicts expectations for Fed rate cuts

“This week we will have a better grip on earnings as the flow of corporate results makes its way on Wall Street. We note that the indices have had a solid run to the up side and could be headed for a slight pullback that we will not likely impact the longer term upward trend,” said Peter Cardillo, chief market economist at Spartan Capital.

“We therefore expect the near term trend to remain bullish, with the S&P 500 testing the 4250 area in the short term,” he added.

Investors will be expecting earnings from Tesla Inc.(TSLA) and International Business Machines Corp.(IBM), among others, after the market closes Wednesday.

The Federal Reserve’s Beige Book of economic anecdote will be published at 2 p.m. and New York Fed President Williams is due to speak at 7 p.m., all times Eastern.

Companies in focus

— Jamie Chisholm contributed to this article.

-Isabel Wang

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04-19-23 1341ET

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