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  • Writer's pictureThe San Juan Daily Star

Wall St falls on downbeat earnings, rate jitters

U.S. stock indexes fell on Thursday as disappointing results from Tesla, AT&T and some regional banks dented investor sentiment already soured by prospects of further interest rate hikes.

Wall Street has remained steady this week with mixed earnings from U.S. banks allaying contagion concerns stemming from bank failures last month, but rapidly rising rates and recession worries have dimmed lenders’ outlook.

Tesla Inc tanked 8.7% to touch its lowest in more than a month after its first-quarter gross margin missed expectations due to aggressive price cuts on its vehicles and as CEO Elon Musk has put sales growth ahead of profit.

“Tesla is and has been struggling. They’ve been cutting prices pretty regularly and that’s not something that you do if the market is strong for your product,” said Paul Nolte, market strategist at Murphy & Sylvest Wealth Management.

Losses in Tesla and other carmakers Ford Motor Co and General Motors Co led to a 1% drop in consumer discretionary stocks.

Consumer staples, a defensive sector, was the only gainer in an otherwise weak market.

AT&T Inc slid 9.4% as the wireless carrier missed estimates for first-quarter revenue, while American Express Co slipped 3.2% on missing first-quarter earnings expectations.

Gains of 7% each in chip company Lam Research after it beat third-quarter revenue estimates and homebuilder D.R. Horton following its upbeat full-year revenue forecast helped cut some losses in the broader market.

Analysts have largely retained last week’s expectations of a near-5% year-on-year fall in quarterly profits at S&P 500 companies, according to Refinitiv data.

Traders are reassessing the path for interest rates after data indicated that a slowdown in the U.S. economy was not enough to push the Federal Reserve to start cutting rates as early as this year. Comments from Fed policymakers this week have also supported bets on further policy tightening.

Investors see an 88% chance of the Fed hiking rates by 25 basis points next month, according to CME Group’s Fedwatch tool, but they have also priced in rate cuts by the end of the year.

Data showed the number of Americans filing new claims for unemployment benefits increased moderately last week, suggesting that the labor market was gradually slowing, while another set of numbers showed factory activity in the U.S. Mid-Atlantic region slumped more than expected in April.

“The momentum of the data is shifting toward weaker economic growth and the argument in favor of a Fed pause is increasing,” David Russell, vice president of market intelligence at TradeStation.

Adding to worries, the cost of insuring exposure to U.S. sovereign debt rose to the highest level since 2011 over market jitters that the government could hit its debt ceiling sooner than expected.

At 11:45 a.m. ET, the Dow Jones Industrial Average was down 96.16 points, or 0.28%, at 33,800.85, the S&P 500 was down 18.73 points, or 0.45%, at 4,135.79, and the Nasdaq Composite was down 49.15 points, or 0.40%, at 12,108.07.

IBM Corp gained 1.6% after the software company beat estimates for first-quarter profit.

Among regional banks, Zions Bancorp, Truist Financial Corp and KeyCorp dropped between 2.2% and 5.5% after their quarterly profits missed estimates.

Declining issues outnumbered advancers by a 1.82-to-1 ratio on the NYSE and a 1.72-to-1 ratio on the Nasdaq.

The S&P index recorded 21 new 52-week highs and three new lows, while the Nasdaq recorded 39 new highs and 89 new lows.

(Reporting by Sruthi Shankar and Ankika Biswas in Bengaluru; Additional reporting by Vansh Agarwal; Editing by Arun Koyyur and Vinay Dwivedi)

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