Stock news reveals the Nasdaq and S&P 500 were flat as higher Treasury yields weighed on shares, while the Dow Jones Industrial Average rose, as earnings from UnitedHealth boosted the industrials average.
Stock news: Top companies
Shares of UnitedHealth Group jumped 5.6% after the health insurer beat earnings estimates for the first quarter.
However, the rise in the yield of the 10-year government bond to a five-month high capped market advances, after data on US retail sales in March showed a massive spike, underlined by a healthy boost in online shopping, and setting the stage for a robust start to the year for the US economy.
Stock Trading Trends: Equities lose ground with Treasury yields
Stock news: Middle East conflict
On the same day, Israel’s war cabinet was to hold its third straight meeting to discuss how to reply to Iran’s remarkable first strike.
Investors waited for opinions from various policymakers, including Federal Reserve chair Jerome Powell. ‘We now have the situation where we may need to continue to raise rates if inflation does not come down,’ Fed vice chair Philip Jefferson noted.
The S&P 500 continues to languish almost 4% below its record high from last month, while the Nasdaq remains almost 5% below its record high last month.
Money market expectations for how much the Federal Reserve will bring down interest rates this year were cut by half, from 150 basis points at the beginning of the year to just 42 basis points now.
Sectors sensitive to interest rates, including real estate and utilities, saw some of the biggest losses, with each falling more than 1%.
At 11:38 a.m. ET, the Dow was up 87.80 points, or 0.23%, at 37,822.91, while the S&P500 was down 6.53 points, or 0.13%, at 5,055.29, and the Nasdaq Composite was down 8.89 points, or 0.06%, to 15,876.13.
Stock news: Banks winning in markets
Morgan Stanley was up 3.7% after it beat profit estimates for the first quarter, helped by rebounding investment banking.
Bank of America fell 3.9% after reporting a drop in first-quarter profit as it set aside more money to cover bad loans.
Johnson & Johnson lost 1.6% after reporting revenue for the quarter missed estimates, with the US drugs giant saying that a key source of its profit growth was slowing as an older psoriasis drug struggled to win market share.
Tesla is down 2.2%, after dropping more than 5% Tuesday, reportedly saying it is laying off a number of workers in a bid to cut costs.
Stock news: S&P, NYSE & Nasdaq
According to the market internals we can see more issues were declining than advancing (2.49-to-1 and 1.86-to-1 on the NYSE and Nasdaq, respectively) for the fifth session in a row.
The S&P recorded just one new 52-week high and seven new lows, while Nasdaq saw 12 new highs and 272 new lows.
Wall Street executives say they’re seeing a pick-up in investment banking activity.
But even those few investors that are beating the drum about a return of the boom times admit things have been cautious.
According to the latest earnings reports from large US banks, capital markets – investment banking – led the recovery in the first quarter.
Stock news: Mogran Stanley up
‘We have good backlogs and momentum at the firm,’ said Morgan Stanley’s new CEO Ted Pick in a conference call shortly after his first quarter as head of Wall Street’s smallest firm.
‘We’re mindful of the risk that economic and geopolitical dynamics continue to persist,’ Pick added. He was talking up the firm’s robust pipelines, but added the caveat that there is still ‘a very high degree of uncertainty’.
Morgan Stanley said its investment banking revenues doubled 16% to $7 billion this quarter, sending its shares higher by more than 3%.
At Bank of America, investment banking fees surged 35% to $1.6 billion, but shares dipped more than 4% because the bank raised money to cover bad loans.
Stock news: Investment banking up
‘We’re just happy to see investment banking activity picking up,’ Bank of America CFO Alastair Borthwick told analysts earlier this week.
‘We’re focusing on building our middle markets presence and connecting our bankers in ways that they haven’t been able to connect in the past.’
At Aptus Capital Advisors, David Wagner said the firm ‘liked’ everyone, singling out Morgan Stanley‘s ‘excellent’ performance. Goldman Sachs, JPMorgan Chase and Citigroup reported similar rises.
During the earnings calls, executives highlighted upside, marking a notable departure from recent quarters when they focused more on potential downside risks linked to contested elections, trade wars, conflicts and the coronavirus pandemic.
Stock news: IPO makes headlines
Meanwhile, Goldman Sachs’ chief executive David Solomon announced he was ‘extremely optimistic’ about the third quarter on a Monday call, adding that he was confident that ‘activity that is usually there’ among strategically minded corporate decisionmakers and capital needs would return.
The bank’s shares climbed 3% after it reported a 28% year-over-year profit increase that beat analyst estimates.
In recent months, equity capital markets appear to be warming. Several IPOs have made headlines.
Stock news: Citigroup rising
And following a sharp increase in Citigroup’s investment banking fees of 35%, the group’s CEO Jane Fraser said that: [W]e are seeing the potential for a measured re-opening of the IPO market in the second quarter … [But] the M&A market has been pretty quiet.
‘In the US especially there has been such good corporate sentiment, in the middle market, balance sheets around the world are very strong – my issue with the market is just that geopolitical risk has been priced out,’ Fraser said.
He noted that Citigroup was about to complete what ‘will be our largest distribution banker hire ever’ in the form of Viswas Raghavan, who had spent a decade at JPMorgan.
While fellow banking giant JPMorgan’s CFO Jeremy Barnum admitted that the future of the frenzied M&A activity remained uncertain at best, and that regulatory pressures were already hurting those who advise businesses in the capital markets.
Morgan Stanley’s Pick told investors he believed that geopolitical tensions could ramp up international dealmaking, especially if regime changes around the world forced major supply chains to reset.
Stock news: Big gains in banking
‘There are early signs of a multi-year M&A cycle,’ Pick said.
‘Capital markets are showing that there is sustained opportunity for M&A activity … and other underwriting activity.’
Meanwhile, Fraser pointed to the willingness of CEOs and boards to wield their biggest guns, citing recent big-ticket M&A announcements.
Solomon at Goldman Sachs says that more private equity-backed deals are in the pipeline due to their need to distribute that capital.
Fraser said financial sponsors have been sitting on $3 trillion in unallocated dollars to put to work.
Stock news: Citigroup jumps 11%
Through Friday, Citigroup has jumped nearly 11% so far this year, beating the 6% and 3% rises logged by peers JPMorgan and Bank of America, respectively, and just ahead of Goldman’s 3% gain; Morgan Stanley’s shares have given up 3%.
The broader S&P 500 banks index has climbed 6%.
Europe’s leading stock index suffered its biggest one-day fall in more than nine months on Tuesday as soaring energy prices and escalating tensions in the Middle East prompted investors to eschew risky assets.
Stock news: Eurostocks in focus
The pan-European STOXX 600 index closed 1.6% lower, having slipped to its lowest since 7 March, while higher bond yields in the eurozone also weighed on equities.
The basic resources sector fell 3.1% – its biggest loss since mid-August – as the price of copper, a leading indicator for global demand, weakened on the back of disappointing Chinese factory data and another surge in the US dollar.
The banking sector also suffered the day’s biggest loss, falling 2.6% – its biggest slump since August – with the biggest losses at 3% of UK banks, including HSBC, the world’s biggest bank by market capitalisation and the eurozone’s BNP Paribas.
Other industries that fell by around 2% included automobiles, insurance and energy, while major indexes in Germany, France, Italy and Spain all fell by more than 1% as the world went risk-off in the buildup to the inevitable Israeli response to Iran’s first-ever direct strike.
Stock news: Middle East tensions
Meanwhile, Jennifer McKeown, chief global economist at Capital Economics, told the FT: ‘While the tensions in the Middle East have increased the downside risks, they also mean policymakers at the ECB and the Bank of England might be more reluctant to start cutting rates as they plan to begin doing this summer.’
At its latest meeting, the ECB council solidified their plans for a rate cut in June, predicting that prices will climb back up to 2% by next year, even if there is some continued volatility.
The likes of Morgan Stanley and Deutsche Bank predicted 75 basis points of borrowing-cost decrease at the ECB this year – reflecting a climate of doubt over the US Federal Reserve rate cut trajectory and chronic eurozone inflation.
Stock news: Rate cut expectations
Those rate cut expectations have boosted stocks elsewhere; the STOXX 600 hit a record in early July.
Eyes are on quarterly results now; a 12.1% drop year-on-year in the first quarter is the latest projection from LSEG data.
In other stock news, individual stocks made notable swings. Shares in ArcelorMittal, the world’s second-biggest steelmaker, fell 6.9% at after Deutsche Bank downgraded the stock from ‘buy’ to ‘hold’.
Barry Callebaut, the chocolate manufacturer, jumped 6.7% after an upgrade from Stifel to ‘buy’.
Fresenius, a conglomerate, gained 4.6% after saying Tyenne, the German drugmaker’s biological medicine for chronic autoimmune diseases, had been launched in the US.
The Danish insurance group Topdanmark rose 4.3% after saying first-quarter profits had been better than expected, and raising its full-year profit guidance.
Naturgy added 3.4% after confirming that talks were underway between its holding vehicle Criteria and a potential investment group about the Spanish energy company.
Nearly 2% wiped off London’s stock market on Tuesday, with one of its broadest falls for years amid intensifying geopolitical tension in the Middle East and renewed doubts over expected cuts in US interest rates.
The main British indices, the FTSE 100 and the FTSE 250, both tumbled by 1.8%.
At one point, the day’s decline of the FTSE 100 was the worst in percentage terms since October.
All but three of its constituents fell on the day. The FTSE 250 hit a three-month low, down 2.7% at one point.
The bootmaker Dr Martens fell by 29.4% to a record low after it named a new chief executive and warned that ‘ongoing consumer frailty’ in the US would make fiscal year 2025 challenging.
The news dragged the personal goods sector to a 14-year low of 5.7% down.
Last week, the fashion retailer Superdry announced it was in the early stages of a turnaround plan that includes an equity raise to take the business private; its shares fell 23.8%.
The commodities sector underperformed the wider market as industrial metal miners dipped 3.1%.
Metals may have been slightly hit by price weakness after a US dollar uptick, though the whole market was the victim of some heavy selling as the lifting of hopes for a cut soon from the US central bank led to a slippage in those expectations to 41 basis points for a Bank of England rate cut in 2024.
