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Market Snapshot: Dow clings to gain as earnings season kicks off, with investors scaling back Fed rate-hike expectations

U.S. stocks gave up early gains on Monday after Bloomberg reported that Apple Inc. plans to slow hiring and spending growth in some divisions next year in anticipation of a potential economic downturn.

How stocks are trading
  • The Dow Jones Industrial Average DJIA, -0.56% fell 114 points, or 0.4%, to 31,172, after rising 356 points at its session high.
  • The S&P 500 SPX, -0.72% dropped 21 points, or 0.5%, to trade at 3,842.
  • The Nasdaq Composite COMP, -0.71% declined 67 points, or 0.6%, to 11,385.

On Friday, the Dow rose 658 points, or 2.2%, as it and the S&P 500 and the Nasdaq Composite trimmed weekly losses.

What’s driving markets

A Bloomberg report about Apple’s plan to slow hiring and spending growth is the most likely reason that the stock market shifted into a selloff mode on Monday afternoon, according Dan Eye, chief investment officer of Fort Pitt Capital Group in Harrisburg, Pa. Shares of Apple AAPL were down by 1.8% after the report.

“Investors are really questioning optimistic earnings forecasts for the rest of this year and into 2023,” Eye said via phone. “We are going to need to get our arms around what earnings are going to look like in coming quarters and that’s going to depend on guidance.”

Earlier on Monday, investors had been focused on positive elements within the quarterly results of Goldman Sachs Group Inc. and Bank of America Corp.

Goldman shares were up 2.1% after the investment-banking giant posted a stronger-than-expected second-quarter profit, although earnings fell from the year-ago quarter. Bank of America

BAC, -0.05%

shares were 0.4% higher after the bank fell short of Wall Street’s profit estimate, but revenue matched expectations and net interest income beat.

The first full week of the U.S. second-quarter earnings season is getting under way, with

IBM, -0.98%

set to deliver its figures after the closing bell.

Reports from other big banks, such as JPMorgan Chase

JPM, -0.91%

, were not initially well-received last week. But the market mood brightened by Friday and continued for much of Monday morning after Federal Reserve officials talked down the prospects of a 100-basis point rate hike at next week’s policy meeting.

See also: Investors are obsessed with size of Fed’s next rate hike. Here’s what they’re missing.

The chances of such a sharp tightening are now around 33%, compared with 80% last Wednesday, and a 75 basis point move to 2.25% to 2.50% is baked in. The dollar index DXY, -0.66% eased from 20-year highs in response, falling 0.7% to 107.34.

Traders had been watching to see if upside momentum would continue after a strong finish last week.

“Bullish momentum in equities has been elusive this year, but Thursday was conspicuous in that both the stock market and crude oil made multiweek or multi-month lows before reversing to close near their highs of the day, and then followed through to the upside on Friday,” Chris Larkin, managing director of trading at E-Trade from Morgan Stanley, said in emailed comments.

“Whether that momentum will carry into this week — or longer — remains to be seen. Though in the past, when the SPX has made similar pullbacks, it was higher one week later more time than not,” he said.

Read: Why the analyst who called summer stock-market bounce now sees more S&P 500 upside

The Fed, however, is unlikely to relent on its aggressive rate-hike pace, especially against a backdrop of a strong labor market and resilient corporate and consumer spending, he said. Longer term, “stagflation could be on the docket.”

Aside from earnings, it’s likely to be a quiet week for U.S. macroeconomic catalysts, with the Fed now in the premeeting blackout period and investors possibly turning their attention elsewhere.

“We see the ECB (European Central Bank) raising rates by 0.25% this week amid high inflation and despite recession fears,” Wei Li, BlackRock Investment Institute’s global chief investment strategist, and others wrote in a note Monday.

“Both the ECB and Fed are for now pandering to `the politics of inflation,’ or pressure to tame inflation. We think the ECB will pause its hiking first,” they said. “Why? The energy crisis means Europe’s growth is likely to stall soon. Higher rates and political turmoil may also send peripheral borrowing costs spiraling. All this leaves us favoring credit over stocks and neutral on euro area government bonds.”

Companies in focus
  • Shares of Dow component Boeing Co. BA, +0.30% rose 0.7% after the aerospace and defense giant said Delta Air Lines Inc. DAL, +4.00% would order 100 of its 737-10 jets as the air carrier modernizes its single-aisle fleet. Delta shares rose 4.1%.
  • Elon Musk filed a motion Friday opposing Twitter Inc.’s TWTR, +1.54% request to expedite a trial over his intention to terminate his $44 billion takeover. Twitter shares were up 1.2%.
How other assets are faring
  • Oil futures were higher with U.S. crude futures CL.1, +4.66% adding 4% to trade back over $101 a barrel, benefiting from signs that U.S. President Joe Biden had not secured an immediate increase in Saudi Arabian supply.
  • The 10-year Treasury yield TMUBMUSD10Y, 2.954% rose 4 basis points to 2.967%. Yields and debt prices move opposite each other.
  • The ICE Dollar index DXY, -0.66% fell 0.7%, helping to inspire gains for gold. August gold gained $6.60, or 0.4%, to settle at $1,710.20.
  • Bitcoin BTCUSD, +3.56% advanced 5% to 21,977.
  • In Europe, the Stoxx 600 XX:SXXP and FTSE 100 UKX, +0.90% each finished up by 0.9%.
  • Asia markets got an added lift from signs the Chinese authorities will look to support the construction sector and ease monetary policy. Hong Kong’s Hang Seng HSI, +2.70% finished 2.7% higher and the Shanghai Composite SHCOMP, +1.55% closed up by 1.6%. Japan was shut for a holiday.

— Jamie Chisholm contributed to this article.

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