U.S. stocks edge higher as earnings season revs up

Wall Street drifted higher Monday to kick off the first full week of earnings reporting season.

The S&P 500 rose 13.68 points, or 0.3%, to 4,151.32 in its first trading day after squeezing out a fourth winning week in the past five. The Dow Jones Industrial Average gained 100.71 points, or 0.3%, to 33,987.18, while the Nasdaq composite climbed 34.25 points, or 0.3%, to 12,157.72.

Several financial companies reported a mixed set of profit reports for the first three months of the year. They followed a bevy of better-thanexpected reports from JPMorgan Chase and other big U.S. banks that marked the unofficial start of reporting season late last week.

A lot of focus has been on the strength of the financial industry after the second- and third-largest U.S. bank failures in history last month rocked markets worldwide.

Charles Schwab reported better-than-expected profit, and its stock rose 3.9%. Shares in the company flipped from an earlier loss after Charles Schwab said deposits fell more than expected last quarter. It also paused a stock buyback program.

A worry for the financial industry has been that customers will pull out deposits amid fear about the U.S. banking system after the collapses last month of Silicon Valley Bank and New York-based Signature Bank. The spotlight has been on midsize banks that are a rung or several below in size of JPMorgan Chase and the other “too-big-to-fail” banks. The midsize banks are seen as more being vulnerable to customers fleeing en masse, akin to the runs that helped cause the two recent failures.

On Monday, M&T Bank Corp. jumped 7.8% for the biggest gain in the S&P 500 after the company reported stronger-than-expected profit and revenue. State Street Corp. dropped 9.2% after the bank reported slightly weaker-thanforecast profit and revenue.

Broadly, expectations for companies across the S&P 500 this reporting season are very low. Analysts are forecasting the sharpest drop in earnings per share for companies in the S&P 500 since the pandemic was pounding the global economy in 2020.

Later this week, Bank of America, Johnson & Johnson, Tesla and several regional banks will report results. So far the earliest trends seem to be encouraging, and the highest percentage of companies are beating profit forecasts.

“A massive, systemic financial confidence shock appears to have been averted, but tighter credit is manifesting in the real economy,” strategists led by Savita Subramanian wrote in a BofA Global Research report.

The worry is that turmoil in the U.S. banking system will cause some banks to pull back on lending to companies and households. That effectively puts the brakes on the economy, when the Federal Reserve has already clamped the vise sharply over the past year in hopes of slowing high inflation.

Higher rates can stifle inflation, but only by broadly slowing the economy, also raising the risk of a recession and dragging down prices for stocks, bonds and other investments. The much higher rates lately have already caused cracks to appear in the U.S. banking system. Fear is rising that the commercial real estate market is also set to shake.

“We expect delinquencies on office loans to materially increase from today’s low levels,” Goldman Sachs strategists led by Lotfi Karoui wrote in a report. “The timing and the magnitude of losses stemming from delinquent CRE loans relative to previous cycles remain, however, uncertain.”

On Monday, one of the biggest gains on Wall Street came from Prometheus Biosciences Inc., which soared 69.7% after the company announced over the weekend that it was being acquired by Merck for $200 per share, or about $10.8 billion. Merck & Co. Inc. slipped 0.3%.

In the bond market, the 10-year Treasury yield rose to 3.59% from 3.52% late Friday. It helps set rates for mortgages and other important loans. The two-year yield, which moves more on expectations for the Fed, climbed to 4.19% from 4.10%.