U.S. stocks seesawed on Tuesday as worries over global economic growth dented investor appetite for risk assets and Wall Street looked ahead to what could be a difficult earnings season.
The Dow Jones Industrial Average rose 66 points, or 0.22%, while the S&P 500 dipped 0.08% and Nasdaq Composite slipped 0.31%. The Dow opened sharply lower before recovering those losses.
“There’s a lack of a catalyst, a lack of a leadership right now,” said Truist’s Keith Lerner. “Growth is slowing and global central banks are still in tightening mode and I think that’s concerning the markets.”
Investors appeared to be shunning riskier assets such as stocks in favor of traditional safe havens such as U.S. Treasurys and the dollar. The 10-year Treasury yield fell 9 basis points to 2.9%.
Airline stocks jumped with shares of Delta, United, and Southwest up more than 4%. American Airlines rose 6.7%. Battered cruise stocks Norwegian and Carnival added 2% each. Boeing, Walgreens Boots Alliance, and Home Depot rose 4.5%, 2.4% and 2.2%, respectively, pulling the Dow higher.
PepsiCo kicked off the corporate earnings season on Tuesday. The snacks and beverage company reported a better-than-expected quarterly profit and revenue and raised its revenue outlook for the year. Delta Air Lines and JPMorgan Chase are among the companies slated to report later this week.
Market participants will watch for downside risk to earnings forecasts as companies grapple with rising interest rates and greater inflationary pressures, and as Wall Street debates the likelihood of a recession.
“In terms of S&P earnings, for instance, we think we’re already moving towards an earnings recession,” Marathon Asset Management’s Bruce Richards said Monday on CNBC’s “Closing Bell.”
“Companies are getting squeezed at all sides, they’re getting squeezed on cost of goods and the wages and all things that go into input from our manufacturing goals or services. And on the other end, we think revenues are starting to flatten before turning down at a time when interest cost is going up. …That’s a lot of downgrades, a lot of potential defaults coming from the system as a result of higher charges.”
Businesses able to show they can pass off high commodity prices are going to stand out this earnings season, Lerner said.
The dollar strengthens
The dollar index, which measures the U.S. currency’s performance against six other currencies, popped 0.5% to 108.51. That gain put the euro on the brink of parity with the dollar, as recession fears grow in Europe.
The dollar index has been on fire this year, rising 13%. Several Wall Street strategists have warned that this strength in the U.S. currency could spell trouble for corporate earnings ahead.
“The surging USD is a symptom of global unease and will make life even more difficult for Corporate America (the EPS headwind from FX is going to be enormous) and int’l central banks (as the slumping EUR, GBP, etc., adds to the inflationary pressures in the EU and UK),” wrote Adam Crisafulli of Vital Knowledge.
Inflation is also on investors’ radars this week with June’s consumer price index report set for release Wednesday. The headline inflation number, including food and energy, is expected to rise to 8.8% from May’s level of 8.6%, according to estimates from Dow Jones.