“Analysts have been too rosy for the profit outlook for this year,” Saglimbene said. “As these companies are reporting, they’re giving very realistic and more downbeat assessments of what the demand outlook is going to look like this year, and there’s the realization that economic activity is slowing, profit growth is likely slowing and maybe even turning negative. And I think stock prices are adjusting to that.”
Texas Instruments fell as much as 3.1 per cent despite reporting stronger profit and revenue for its latest quarter than expected. Markets were more interested in the company’s forecast for the first three months of 2023. Company officials said they’re expecting continued weakening in demand across all its markets outside of automotive. Its stock ended up paring its loss to 1.1 per cent.
On the winning side was AT&T, which rose 6.6 per cent after reporting stronger profit than forecast.
Shares of electric-vehicle maker Tesla shook off a morning loss of as deep as 4 per cent to rise 0.4 per cent ahead of its earnings report, which arrived after trading ended for the day. That helped to steady the market given Tesla’s large size.
All told, the S&P 500 slipped 0.73 points, or less than 0.1 per cent, to 4,016.22. The Dow rose 9.88 points, or less than 0.1 per cent, to 33,743.48, and the Nasdaq fell 20.91 points, or 0.2 per cent, to 11,313.36.
The level of cash and profit that companies produce is one of the main levers that set stock prices on Wall Street. The other big one depends largely on interest rates, and there’s still a wide disconnect between what investors and the Federal Reserve see as coming later this year.
Nearly everyone is expecting the Fed to raise its key overnight interest rate by 0.25 percentage points on Feb. 1. That would be another downshift in the size of the Fed’s rate hikes, down from 0.50 points last month and four straight increases of 0.75 points earlier. A slowdown in inflation since a summertime peak is raising hopes for the Fed to apply less additional pressure on the economy.
Many investors expect inflation to keep cooling, and they’re betting on the Fed to actually begin cutting interest rates toward the end of this year. The Federal Reserve, meanwhile, says it wants to keep rates high at least through the end of the year to ensure high inflation is truly stamped out.
Higher rates hurt the economy by making it more expensive for businesses and households to borrow. They also hurt prices for stocks and other investments.
The yield on the 10-year Treasury, which helps set rates for mortgages and other economy-dictating loans, dipped to 3.44 per cent from 3.46 per cent late Tuesday. The two-year yield, which moves more on expectations for the Fed, fell to 4.14 per cent from 4.21 per cent.
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