Los Angeles Times

A winning week despite a drop

- By Stan Choe Choe writes for the Associated Press. AP writer Elaine Kurtenbach contribute­d to this report.

Stocks slipped Friday, giving back some of their gains from earlier in the week as worries brewed about the global economy and prospects for profits at big internet companies.

The Standard & Poor’s 500 lost 0.9%, breaking a three-day rally that had carried Wall Street to its highest level in six weeks. The Nasdaq composite index led the market lower with a 1.9% drop after worse-than-expected profit reports from Snap, Seagate Technology and other tech-oriented companies.

The Dow Jones industrial average held up better, slipping a more modest 0.4%. That was in large part because constituen­t American Express gave an encouragin­g earnings report and said its cardholder­s were spending more.

Sandwiched between last week’s dispiritin­g report on inflation and next week’s decision by the Federal Reserve on interest rates, the S&P 500 still delivered its best week in a month after a collection of mostly betterthan-expected reports on corporate profits. Falling yields in the bond market also helped, easing the pressure on stocks after expectatio­ns for rate hikes by the Fed sent yields soaring much of this year.

On Friday the two-year Treasury yield tumbled again, to 2.98% from 3.09% late Thursday and from 3.14% a week ago, on worries about the economy. A report Friday morning indicated U.S. business activity may be shrinking for the first time in nearly two years, with service industries particular­ly weak.

“Manufactur­ing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook,” Chris Williamson, chief business economist at S&P Global Market Intelligen­ce, said in a statement accompanyi­ng the survey data.

Similar reports also suggested weakness in Europe, underscori­ng how fragile the global economy is as central banks jack up interest rates in order to tame inflation.

Friday’s reports are the latest to show parts of the economy are slowing more than expected. While that raises the threat of a recession, it also has traders ratcheting back expectatio­ns for the Federal Reserve’s aggressive­ness next week.

Instead of a full percentage point, traders now see an increase in rates of 0.75 of a percentage point as the most likely outcome.

The 10-year Treasury yield fell to 2.76% from 2.91% late Thursday.

In the stock market, the company behind the Snapchat app tumbled 39.1% after it reported a worse loss and lower revenue for the spring than Wall Street forecast.

The weakness for Snap could mean pressure on other companies that depend on internet advertisin­g, which also happen to be among Wall Street’s most influentia­l stocks. The parent companies of both Facebook and Google are scheduled to report their earnings next week. The pair fell 7.6% and 5.6% respective­ly on Friday, accounting for two of the heaviest weights on the S&P 500.

The S&P 500 lost 37.32 points to close at 3,961.63. The Dow fell 137.61 points to 31,899.29, and the Nasdaq fell 225.50 points to 11,834.11.

Adding to the pain for tech, data storage company Seagate Technology lost 8.1%. It said anti-COVID measures in Asia and slowing global economic conditions last quarter hit its results, which fell short of forecasts.

Verizon dropped 6.7% after its profit fell short of expectatio­ns, though not its revenue. It also cut its forecast for earnings this year.

On the winning side was American Express, which rose 1.9% after it delivered better profit for the spring than analysts expected. It said customers spent more on travel and entertainm­ent in April than they did before the pandemic, the first time that’s happened.

The encouragin­g data bolstered some recent comments from chief executives at big banks, who said their customers appear to be in solid financial shape despite all the worries about inflation and the economy.

Despite Friday’s drops for Wall Street, the S&P 500 still rose 2.5% for the week.

Besides the easing of Treasury yields through the week, dropping prices for crude oil and other commoditie­s also provided some relief on the inflation front. They add to some signals suggesting inflation may be close to peaking, such as easing expectatio­ns for inflation in future years, said Nate Thooft, senior portfolio manager at Manulife Investment Management.

“Inflation is the most important thing,” he said. “It’s not earnings, it’s not the Fed, it’s not interest rates themselves. It’s the uncertaint­y of inflation.

“To me, as soon as you see real evidence that inflation is stabilizin­g and improving, all the other things also become less problemati­c,” he said.

Newspapers in English

Newspapers from United States