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.
Elsewhere, Goldman Sachs shares slumped 1.7% after the banking giant reported lighter-than-expected revenue, dragged down by a $470 million hit from its Marcus loans.
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.
Earnings season presses on after the bell with results from United Airlines and streaming giant Netflix.
The major averages finished close to the flatline on Tuesday.
The S&P 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.
— Samantha Subin
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 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
A slew of homebuilding stocks gained on Tuesday after housing starts for March narrowly beat estimates.
The iShares U.S. Home Construction ETF added 2%, gaining for a third straight day, while the SPDR S&P Homebuilders ETF added 1.6%.
Individual homebuilding stocks also rose, with PulteGroup, Lennar and KB Home last up 3.4%, 2.9% and 2.2% respectively
— Samantha Subin
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
Subscriber growth will be top of mind for investors and traders when Netflix reports first-quarter results after the bell Tuesday.
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
Don't be surprised if markets seem more volatile this week as earnings season gains some steam, according to Charles Schwab's Randy Frederick.
"I suspect we'll experience higher volatility this week as earnings reports roll in, but it's impossible to know whether they will be a net positive or negative for stocks," the managing director of trading and derivatives said. "Therefore, my outlook for this week is 'volatile' and 'neutral.'"
Given this setup, Frederick is bracing for some intra-week volatility, although he expects the S&P to hover around these levels by next Friday. The "upper resistance" on the benchmark index near the 4,200 level should "keep a lid on any attempted rallies," he added.
— Samantha Subin
With slightly more than half of the trading month completed, the Dow is up 2.1%.
April has historically been the best month of the year for the 30-stock index, with an average advance of 1.9% going back to 1950. By comparison, the Dow has added just 0.7% when averaging all months in that time period.
Previous pre-election years are typically even better for April. The Dow has gained 3.9% when averaging every April in the years proceeding an election since 1950.
With the 2.1% advance, the Dow has performed the best of the three major indexes so far this month. The S&P 500 has gained 1%, while the Nasdaq Composite has shed 0.7%.
CNBC Pro subscribers can read more about why April is the best month for the blue-chip index here.
— Alex Harring
Bank of America CEO Brian Moynihan said Tuesday he sees only a slight recession hitting the U.S. as consumers remain in solid shape.
"Everything points to a relatively mild recession given the amount of stimulus that was paid to people and the money they have left over," Moynihan said in the bank's quarterly earnings call. "At the end of the day, we don't see the activity on the consumer side slowing at a pace that would indicate that, but we would see commercial customers are being more careful."
Moynihan said that Bank of America's research team has been consistent in calling for a mild downturn in light of the Federal Reserve's aggressive rate hikes. The bank is predicting annualized GDP contraction in the range of half to 1 percentage point in the next three quarters before going back to positive growth, he said.
— Yun Li
Tax Day has arrived, and the latest refunds are looking light compared to last year.
The average refund amount is $2,878 for the week ending April 7, the latest data available from the Internal Revenue Service. That's a decline of more than 9% from a year ago. Largely this decline is driven by the elimination of certain tax credits after the expiration of pandemic-era relief, including an expansion of the child tax credit.
Don't expect Uncle Sam to boost refunds as the IRS continues to process a deluge of 2022 returns, which are due on April 18.
"As tax refunds continue to lag last year into April, we see little chance of reaching last year's refund levels," wrote Deutsche Bank analyst Krisztina Katai in an April 18 report. She referred to Citigroup and Wells Fargo warning of softening consumer spending on their first-quarter conference calls.
Naturally, there's a way for investors to play these smaller tax refunds – and a more challenged consumer who's now stretching a less-generous check from the Tax Man.
Defensive names, such as Walmart and Dollar Tree are among the "players well positioned to take advantage of value-seeking consumers," she wrote.
— Darla Mercado, Michael Bloom
These companies are making headlines in midday trading.
— Sarah Min
Shares of education technology stock PowerSchool rose 3.4% after Goldman Sachs said the stock was worth buying.
Analyst Gabriela Borges upgraded the education technology stock to buy from neutral. Her $24 price target implies the stock will rally 20% from where it closed on Monday.
"We believe the breadth of PowerSchool's platform is unique and this solidifies its leadership position," she said in a note to clients Tuesday.
Despite the rally, the stock has still fallen more than 10% this year. CNBC Pro subscribers can read the full story here.
— Alex Harring
Expedia is undervalued and the company's management could present better forward guidance and buyback more shares to boost the stock price, according to Bank of America.
The firm reiterated a buy rating on the stock with a $150 price target, which represents about 61% upside for investors from Monday's closing price of $93.38.
"While we are disappointed in YTD Expedia stock performance, we see opportunity for upside for the stock based on realization of potential VRBO value (which could require changes in management disclosure), strong FCF generation to buy back stock, and closing the discount range to Booking to historical averages," BofA research analyst Justin Post wrote on Monday.
— Brian Evans
Risk-averse investors have taken their largest position of bonds relative to stocks in 14 years, according to the latest Bank of America Global Fund Managers survey.
The April survey showed that portfolios collectively are a net 10% overweight on bonds, a level not seen since March 2009 when the equity market bottomed amid the Great Financial Crisis. Equity allocations are a net 29% underweight.
That finding is part of an overall cautious stance, with cash levels holding at 5.5% of portfolios and above the 5% BofA contrarian "buy" signal for 17 straight months. The survey showed that a net 63% of investors expect a weak economy ahead, with a credit crunch and global recession as the top tail risks.
Consequently, a plurality of investors expect the Federal Reserve to begin cutting interest rates in the first quarter of 2024.
—Jeff Cox
Twenty-four stocks in the S&P 500 hit highs in Tuesday's trading session not seen in at least a year:
Office space company WeWork, meanwhile, was trading at all-time lows back to its SPAC merger in October 2021. Commerce Bancshares and renewable energy company Enviva, also outside of the S&P 500, hit lows not seen since November 2020 and March 2020, respectively.
Software giants Oracle, Salesforce and Nvidia were among the stocks notching new highs, with Oracle trading at levels not seen since December 2021 and Salesforce and Nvidia trading at levels not seen since April and March 2022, respectively. Shares of Nvidia were up 2.9% midday after HSBC double-upgraded the chip maker's stock to buy from reduce.
— Pia Singh, Chris Hayes
Goldman Sachs' mixed quarter shows a lingering hangover from its ill-fated foray into consumer banking.
The company, in unwinding its consumer efforts, offloaded a chunk of its Marcus consumer loans, resulting in a $470 million revenue hit that drove its topline miss.
But the move boosted quarterly earnings by a whopping $1.20 per share because it allowed the bank to release $440 million in reserves for loan losses, Mike Mayo of Wells Fargo said Tuesday in a research note.
So its not surprising that while profit of $8.79 a share topped the $8.10 Refinitiv estimate, shares of the bank were last down 2%.
—Hugh Son
Some aerospace and defense stocks rose Tuesday on the back of positive earnings results from Lockheed Martin.
The S&P 500 industry group tracking the sector was last up about 0.8%, boosted in part by a 3% gain from Lockheed Martin.
L3Harris Technologies' stock was last up 1.1%. Shares of Northrop Grumman, Raytheon Technologies and TransDigm Group also moved higher.
— Samantha Subin
Shares of Lockheed Martin gained 3% before the bell after the aerospace and defense contractor beat Wall Street's expectations in the first quarter and reaffirmed its full-year guidance.
Lockheed Martin recorded $15.1 billion in net sales for the first quarter of 2023, compared to $15 billion in the same period last year. The weapons maker reported adjusted earnings per share of $6.43, above the $6 estimate from analysts surveyed by FactSet. The company said first quarter revenue totaled $12.22 billion, below the $12.79 billion consensus estimate from analysts polled by Refinitiv.
During the first quarter, Australia confirmed it would buy 40 Black Hawk military helicopters made by Lockheed from the U.S. for about $1.96 billion, and Lockheed expressed its hopes to deliver more F-35 fighter planes to the country. Canada also said in January that it would buy 88 F-35 jets from Lockheed in a $14.2 billion project to replace its aging fleet. Lockheed also secured a contract in February with the U.S. Navy worth more than $2 billion to integrate hypersonic strike capability onto surface ships.
"We remain on track to achieve our full year 2023 financial guidance and continue our robust approach to returning capital to shareholders," Lockheed Martin CEO Jim Taiclet said in a press release.
— Pia Singh
Shares of Southwest Airlines fell 2% after the airline said it has paused all departing flights due to technical issues.
More than 1,200 flights, or 30% of Southwest's scheduled flights, were delayed as of 10:48 a.m. ET, according to flight-tracking site FlightAware.
— Leslie Josephs, Samantha Subin
Bank of America CEO Brian Moynihan said his firm expects a mild economic downturn.
"We earned good returns for you ... We did this as the economy slowed and remember our research team continues to predict a shallow recession that will occur beginning in the Q3 of 2023," Moynihan said on an earnings call Tuesday.
— Yun Li