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  • Writer's pictureThe San Juan Daily Star

Wall St slips as Fed seen hiking rates in May; State Street sinks

U.S. stocks slipped on Monday after strong data on manufacturing activity in New York state supported the case for another interest rate increase in May, while investors awaited more quarterly reports to gauge the health of corporate America.

State Street Corp’s shares sank 11.9% after the custodian bank’s first-quarter profit missed estimates, hurt by a fall in fee income due to the recent U.S. banking crisis.

Peers Northern Trust Corp and Bank of New York Mellon Corp shed 4.8% and 6.9%, respectively.

“There were some earnings that weren’t great and State Street was one of those,” said Joe Saluzzi, co-manager of trading at Themis Trading. “The focus shifts from inflationary worries to what corporate earnings are looking like and how far of a negative do we have here.”

Investors will be on the lookout for reports from major U.S. banks including Goldman Sachs Group Inc, Bank of America Corp and Morgan Stanley through the week, after banking heavyweights including JP Morgan Chase & Co reaped windfalls from higher interest payments last week.

Other big-ticket earnings such as Netflix Inc, Tesla Inc and Johnson & Johnson are also expected this week.

Analysts expect profits at S&P 500 companies to have declined 4.8% in the first quarter of 2023 from the year-earlier period, according to Refinitiv data, a slight improvement from last week’s forecast of a 5.2% decline.

Equity markets were also pressured by a rise in Treasury yields after the New York Fed said its barometer of manufacturing activity in the state increased for the first time in five months in April. [US/]

The U.S. central bank is widely seen raising rates by 25 basis points to the 5.00%-5.25% range next month, but recent economic data signaling a slowing U.S. economy have intensified debate over whether it will be the last in this cycle.

Traders’ bets of a 25-bps hike in May have risen to 85% from 78% last week, according to CME Group’s Fedwatch tool.

A slew of Fed officials are slated to speak this week, and investors will scrutinize the comments for new indications on whether further rate hikes are likely after May.

At 11:38 a.m. ET, the Dow Jones Industrial Average was down 40.72 points, or 0.12%, at 33,845.75, the S&P 500 was down 12.06 points, or 0.29%, at 4,125.58, and the Nasdaq Composite was down 48.24 points, or 0.40%, at 12,075.23.

Alphabet Inc dropped 3.7% after a report that Samsung was considering replacing Google with Microsoft Corp’s Bing as the default search engine on its devices. Microsoft’s shares rose 0.3%.

Prometheus Biosciences Inc rallied 69.2% on Merck & Co’s plans to buy the biotech company for about $10.8 billion.

Charles Schwab Corp gained 3% after the financial broker’s profit beat estimates, helped by rising interest rates.

Advancing issues outnumbered decliners for a 1.04-to-1 ratio on the NYSE and a 1.21-to-1 ratio on the Nasdaq.

The S&P index recorded 14 new 52-week highs and one new low, while the Nasdaq recorded 54 new highs and 122 new lows.

Economy-sensitive industrial, financial and energy sectors gave up some of their recent gains.

Minutes released on Wednesday from the Fed’s latest policy meeting indicated concerns of a recession following the banking sector stress and that several policymakers considered pausing rate hikes last month.

Big U.S. banks JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co are scheduled to report quarterly results on Friday, and investors will watch them closely for details about the sector’s overall health.

Analysts expect S&P 500 companies to record a profit decline of 5.2% in the first quarter, as per Refinitiv IBES data, in what could be their worst showing since the third quarter of 2020.

Financial companies that are part of the S&P 500 are expected to report a profit growth of 4.3% in the first quarter.

At 9:43 a.m. ET, the Dow Jones Industrial Average was up 18.09 points, or 0.05%, at 33,664.59, the S&P 500 was up 13.74 points, or 0.34%, at 4,105.69, and the Nasdaq Composite was up 106.53 points, or 0.89%, at 12,035.87.

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