In a cautious trading environment, investors stayed on the sidelines and bank earnings weighed down stocks. However, some possibility of further Federal Reserve policy tightening appeared, lifting Treasury yields. There were small movements in the market as the tech-heavy Nasdaq 100 underperformed the major equity benchmarks.
Despite the positive news of New York state manufacturing activity unexpectedly expanding in April for the first time in five months, Richmond Fed President Thomas Barkin said he wants to see more evidence that US inflation is easing back to the central bank’s goal of 2%. This is because investors scaled back their expectations for rate cuts later in the year as two-year rates climbed to around 4.2%.
Charles Schwab Corp. did well as executives said the firm can weather the crisis hitting banks across the US, while pausing stock buybacks in response to the industry’s worst crisis since 2008. Conversely, State Street Corp. fell as it reported clients were retreating from its investment products.
Given the opaqueness of the current season’s earnings profile, investors and traders tend to get nervous. Some investors are wary of investing in big banks due to compliance-related issues (JPMorgan alone has had to pay a fine of $920 million in recent past). Nonetheless, some are keeping faith in the financial sector. Only time will tell whether the reporting season goes well for everyone.
In the meantime, Tuesday will see China GDP, retail sales, and industrial production data. Also, Goldman Sachs and Bank of America will release their first-quarter earnings, and the Fed’s Michelle Bowman will discuss digital currency. It will be interesting to take note of these events and see how markets fare in the future.
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