Investors Cautioned as Stocks Wobble in Earnings Season

U.S. stock indexes were mixed on Tuesday morning as a number of major companies reported earnings.

The Dow Jones Industrial Average was roughly flat around midday, after sliding earlier in the morning. The S&P 500 and the Nasdaq Composite were both down about 0.1%, also retracing some of the morning’s deeper losses.

The S&P 500 gained 1.2% the day before, to close at its highest level since early December. This was due to investors betting that easing inflation will allow the Federal Reserve to slow the pace of interest-rate rises, and potentially even cut rates later this year. The Wall Street Journal reported that officials at the central bank are considering a smaller rate increase for the meeting next week.

It's earnings season, and that means big companies are releasing their quarterly results. General Electric, Johnson & Johnson, Danaher, and 3M have all reported, and Microsoft is next up after the market closes. This will be the first earnings report from a major tech company.

John Roe, head of multiasset funds at Legal & General Investment Management, said that earnings would be the biggest thing this week.

So far this earnings season, there haven't been any major downgrades to corporate outlooks or to consensus forecasts for the coming year, according to Mr. Roe. This is good news for the economy, as it suggests that a recession may not be imminent.

GE stock was volatile on Thursday, declining in early trading before flipping to small gains. The industrial conglomerate reported revenue and profit that topped Wall Street forecasts, driven by strong demand for jet engines and power equipment.

3M shares fell 6% after the company reported a slowdown in sales and said it would eliminate 2,500 jobs. This news comes as a disappointment to investors who had hoped that 3M would continue to perform well despite challenges in the global economy.

"The market is looking for confirmation that this rally at the start of the year is sustainable. Every number counts," said Antonio Cavarero, head of investments at Generali Insurance Asset Management.

Cavarero went on to say that the market is closely watching economic data to see if the rally can be sustained. He noted that every number is important in this regard.

The latest reading on the U.S. purchasing managers indexes showed that business activities continue to contract, though at a slower pace, in January. The impact of high inflation remains a concern, but similar surveys showed business activity in the eurozone rose this month. This raises the chances that the global economy could avoid a recession this year.

Leo Grohowski, chief investment officer of BNY Mellon Wealth Management, said that a contraction is on the way but it is more likely to be a shallow recession.

In the bond market, the yield on the benchmark 10-year Treasury note declined to 3.479% from 3.522% the day before. Yields and prices have an inverse relationship, so as bond prices rise, yields fall.

Oil prices fell on Wednesday, with most actively traded contracts for Brent crude losing 1.5% to trade at $86.87 a barrel.

Overseas, the pan-continental Stoxx Europe 600 index lost 0.2%. In Asia, markets in Hong Kong, mainland China and South Korea remained closed for Lunar New Year holidays. Japan’s Nikkei 225 index climbed 1.5%.