Stocks are mixed on Wall Street as earnings season kicks off

People walk past the New York Stock Exchange on Wednesday, June 29, 2022 in New York. Stocks are opening lower across the board on Wall Street, Tuesday, July 5, and crude oil prices are dropping again. Treasury yields also fell as traders continued to worry about the state of the economy (AP Photo/Julia Nikhinson)

NEW YORK (AP) — Stocks are holding relatively steady on Wall Street Friday, as earnings reporting season gets underway and CEOs begin to show how well or poorly they’re navigating high inflation and a slowing economy.

The S&P 500 was 0.2% lower in midday trading after erasing most of an earlier loss. The Dow Jones Industrial Average was up 37 points, or 0.1%, at 34,227, as of 11:07 a.m. Eastern time, and the Nasdaq composite was 0.1% lower.

All the indexes are on track to notch gains for the week, and the S&P 500 is still up 3.5% for 2023 so far. The year has begun on Wall Street with optimism that cooling inflation across the country could get the Federal Reserve to ease off soon on its sharp hikes to interest rates. Such increases can drive down inflation, but they do so by slowing the economy and risk causing a recession. They also hurt investment prices.

Slowing chunks of the economy and still-high inflation are dragging on profits for companies, which are one of the main levers that set stock prices. Friday marked the first big day for companies in the the S&P 500 to show how they fared during the final three months of 2022. More than two dozen companies in the index are scheduled to give their own updates next week.

Wells Fargo fell 1.1% after reporting weaker revenue for the quarter than analysts expected. It was one of a slew of big banks that dominated the kick-off to reporting season.

JPMorgan Chase shook off a morning loss to rise 1.2%, while Bank of America inched up 0.1% after reporting stronger profit than expected. Bank of New York Mellon rose 2% after it reported stronger results for the last quarter than expected. Its board also approved a program to buy back up to $5 billion of the company’s stock, which would send cash to shareholders.

Delta Air Lines sank 4.2% after it gave a forecast that thudded onto Wall Street. Despite reporting stronger results for the end of 2022 than expected, its forecast for profits this quarter fell short of analysts’ expectations.

On the winning side were health care companies. UnitedHealth Group rose 1.9% after topping analysts' expectations for profit and revenue.

One big worry on Wall Street is that S&P 500 companies will report a drop in profits for the fourth quarter from a year earlier. It would be the first such decline since 2020, when the pandemic was crushing the economy. Perhaps more importantly, the fear is that weakness could be just the beginning.

If the economy does fall into a recession, as many investors expect, sharper drops for profits may be set for 2023. That's why the forecasts for upcoming earnings that CEOs give this reporting season may be even more important than their latest results.

“We expect earnings to take the center stage going forward, where reactions to earnings have been getting bigger” and reactions in markets to inflation data and the Fed have been waning, equity strategist Savita Subramanian wrote in a BofA Global Research report.

She expects cuts to estimates for corporate earnings to accelerate in coming months, which would pressure stocks.

Treasury yields were holding relatively steady after falling through the start of the year on hopes for cooling inflation and an easier Fed.

The yield on the 10-year Treasury held steady at 3.45%. That yield helps set rates for mortgages and other loans that are crucial for wide swaths of the economy. The two-year yield, which tends to move more on expectations for the Fed, was holding steady at 4.15%.

A report released Friday morning showed U.S. consumers downshifted their expectations for inflation in the coming year, down to 4%, which is the lowest reading April 2021. Long-run expectations for inflation, meanwhile, remained stuck in the narrow range of 2.9% to 3.1% that they've been in for 17 of the last 18 months, according to the University of Michigan.

The Federal Reserve has been intent on such numbers staying low. Otherwise, it could cause a vicious cycle that only worsen inflation. Consumers could start accelerating their purchases in hopes of getting ahead of higher prices, for example, which would only push prices higher.

___

AP Business Writer Elaine Kurtenbach contributed.