The S&P 500 rose on Monday as a big week of earnings kicked off, with Bank of America posting better-than-expected results, while traders kept an eye on rates.
The benchmark index advanced 0.3%, while the Dow Jones Industrial Average added 99 points, or 0.2%. The Nasdaq Composite rose 0.3%.
Bank of America reported quarterly results Monday showing a 13% year-over-year drop in earnings per share, though the results were slightly higher than expected. The stock gained 2.1%. Shares of fellow big banks JPMorgan Chase and Wells Fargo rose more than 1%.
Those numbers raised hope for other companies posting solid quarterly results despite an environment in which rates and inflation are rising.
Technology bellwethers are set to report quarterly earnings this week, with Netflix due on Tuesday and Tesla out on Wednesday. Snap reports Thursday. United Airlines, American Airlines and Alaska Air are also on the calendar, as are railroads CSX and Union Pacific. Several Dow blue-chip names also report earnings this week, including IBM, Procter and Gamble, Travelers, Dow Inc, Johnson and Johnson, American Express and Verizon.
Investors will be paying close attention to forward guidance, especially for comments on how companies are handling surging costs. March’s consumer price index reading released last week showed an 8.5% increase from a year ago, the fastest annual gain since December 1981.
“The odds seem to be long against underlying inflation moderating to an acceptable pace without a significant deceleration of demand growth,” 22V Research’s Gerard MacDonell said in a note Sunday.
Earnings season is off to a decent start with 81.5% of S&P 500 companies reporting earnings per share above expectations according to FactSet. About 7.5% of the benchmark has reported results so far and analysts believe first-quarter earnings will jump 5.3% for the quarter when all S&P 500 companies finish reporting, according to FactSet’s analysis of actual results and future estimates.
Morgan Stanley analysts say earnings reports for the first quarter could end up being more disappointing that expected.
“Earnings revisions breadth for the S&P 500 has resumed its downtrend over the past two weeks and is once again approaching negative territory,” the firm’s equity strategist Michael Wilson said in a note Monday. “The Morgan Stanley Business Conditions Index (a survey of our industry analysts) fell to its lowest level since April of 2020, and margin expectations look overly optimistic for the balance of ’22 given the myriad of cost pressures companies face.”
Meanwhile, the 10-year Treasury yield on Monday reached its highest level since late 2018, trading at 2.884% at one point. The move initially weighed on the market, but the benchmark rate later eased off those levels.
“The big concern is how consistently and how far the 10-year note will rise,” said Sam Stovall, CFRA’s chief investment strategist. “Nothing is really new on the Ukraine front, nothing is really new on the inflation front, the Fed is expected to raise by 50 basis points at its next meeting. So really, the question is, what are the bonds doing?”
The yield was at 1.71% to begin March, but has shot higher as the Federal Reserve pivoted to a more aggressive tightening stance. That change has weighed on stocks in recent weeks and triggered concerns about an impending recession.
Elsewhere, Twitter shares were up 2.7% at about $46.09 per share. The move comes after Twitter announced Friday that the board adopted a limited duration shareholder rights plan, often referred to as a “poison pill.” The move comes after billionaire Elon Musk offered to buy the company for $43 billion.
–With reporting by CNBC’s Patti Domm.