The S&P 500 finished little changed Tuesday as traders digested a slew of earnings reports and their implications for the U.S. economy.
The broad market index edged up 0.09% to end at 4,154.87, while the Dow Jones Industrial Average dipped 10.55 points, or 0.03%, to close at 33,976.63. The Nasdaq Composite inched down 0.04% to settle at 12,153.41.
Major benchmarks fluctuated as investors assessed the latest batch of key earnings reports. Despite a tough economic environment, Bank of America surpassed first-quarter expectations on the top and bottom lines as rates rose. Johnson & Johnson's stock fell 2.8% even after the pharmaceutical company beat estimates and raised its 2023 guidance.
Despite Tuesday's moves, and expectations for declining profits against a backdrop of persistent inflation and rising interest rates, earnings season has so far proven resilient. All the major averages are up since the period kicked off.
But investors warn that profits topping already low expectations won't matter to a market staring at a Federal Reserve that's continuing to tighten into a potential recession.
"Today's mood is about profitability concerns [which] may have been overdone for the quarter, but Fed tightening fears won't be going away anytime soon," said Ed Moya, senior market analyst at Oanda.
Even after last month's dual bank failures sent shockwaves across the financial sector, more than 8 out of 10 of traders anticipate a 25 basis point increase next month, according to CME Group's FedWatch tool. It marks a stark contrast to the calls for a halt in hiking in March.
As another central bank policy meeting looms on the horizon, Atlanta Federal Reserve President Raphael Bostic told CNBC's "Squawk on the Street" on Tuesday that he anticipates one more 25 basis point hike, followed by a hold at that level "for quite some time."
"One more move should be enough for us to then take a step back and see how our policy is flowing through the economy, to understand the extent to which inflation is returning back to our target," he said.
Major averages finish little changed
Schwab may be a wait-and-see story for bulls and bears
Schwab's earnings per share topped expectations for the first quarter on Monday, but analysts are mostly sticking with their prior views on the brokerage firm as they wait to see when and how Schwab's deposits rebound from the regional bank crisis.
Goldman Sachs analyst Alexander Blostein wrote in a note to clients that Schwab now has "a longer road to recovery" but maintained an overweight rating on the stock.
"Although SCHW's significant deposit outflows have pushed out the firm's [net interest income] recovery by about a year relative to original expectations and have reduced capital return opportunities, we still see a meaningful earnings growth acceleration into 2024 and 2025," Blostein said.
Meanwhile, Bank of America's Craig Slegenthaler stuck with an underperform rating, writing in a note to clients that it was too early to say the coast is clear for Schwab.
"While SCHW's money market flows have declined in April, which could indicate sorting is decelerating, April is also tax season, which should pressure m/m growth across cash. If money market flows are low again in May, this would be a positive sign for sorting," analyst Craig Slegenthaler wrote.
Shares of Schwab were up 2.3% on Tuesday after rising nearly 4% on Monday after the earnings report.
— Jesse Pound, Michael Bloom
Deutsche Bank adds Pool Corp. to top picks list following 'belly-flop'
Deutsche Bank added Pool Corp. to its top picks list within the building products industry on Tuesday, noting its recent dip in share price and attractive valuation.
Analyst Joe Ahlersmeyer reiterated his buy rating on the stock. His price target of $460 implies shares could rally 36.3% from where they ended Monday's session.
The upgrade comes amid what Ahlermeyer called a "belly-flop" for the stock, which has pulled back after a January rally. Ahlersmeyer said the dip provides a "second chance" to buy in and takes away some risk. However, despite the recent retreat, the stock is still up 12.6% for the year.
"We continue to view the significant pullback in POOL's share price ... as detached from the fundamentals and valuation," he said in a note to clients Tuesday. "Most investors agree that the topline scenario necessary to substantiate the current valuation is largely out of the realm of probability."
Shares were up 0.9% in Tuesday's session.
— Alex Harring
Homebuilding stocks gain on slight March housing starts beat
A slew of homebuilding stocks gained on Tuesday after housing starts for March narrowly beat estimates.
— Samantha Subin
CBOE Volatility Index reaches lowest level since January 2022
The Chicago Board Options Exchange's CBOE Volatility Index hit its lowest levels since Jan, 2022 during Tuesday's trading session.
The index is derived from the prices of the S&P 500 index options with near-term expiration dates and is a popular measure of the market's expectations of volatility. It was down 0.22 points at 16.72, or 1.3%, Tuesday afternoon.
— Hakyung Kim
All eyes on subscriber numbers when Netflix reports after the bell
Just a year ago, the company reported its first subscriber loss in more than decade as competition in the streaming market ramped up, forcing shares to crater in the session that followed.
Analyst estimates are calling for earnings of $2.86 a share on $8.18 billion in revenue, according to those polled by Refinitiv.
Along with subscriber numbers, Wall Street is also on the lookout for information related to the company's ad-supported tier, launched last year, and the streamer's initiatives to crack down on password sharing. Netflix in February outlined guidelines for users in four countries.
According to UBS analyst John Hodulik, advertising tiers alone could deliver a 10% tailwind to revenue over the coming years. The analyst is also watching how paid sharing will impact the company's near-term growth, he added.
Wells Fargo's Steven Cahall, who remains bullish on Netflix heading into earnings, said in a recent note that he expects management to appear "optimistic on the lift to the P&L from paid sharing implementation."
"This should push estimates higher, and supports NFLX's continued evolution," he wrote.
Some Wall Street analysts, however, remain cautious heading into the print, with Goldman Sachs' Eric Sheridan standing by his sell rating. The analyst also expects in-line subscriber performance, he said in a recent note.
So far this year, the stock's gained 13.3% after a roughly 51% slump in 2022.
— Samantha Subin
Expect volatility as earnings reports come in, says Schwab's Frederick
Don't be surprised if markets seem more volatile this week as earnings season gains some steam, according to Charles Schwab's Randy F