Wall Street drifts lower as week's rally runs out of steam

Statues adorn the facade of the New York Stock Exchange Thursday, July 14, 2022, in New York. Stocks are drifting in mixed trading on Wall Street Friday, July 22, following weaker-than-expected readings on the economy and conflicting profit reports from some big companies. (AP Photo/John Minchillo)

NEW YORK (AP) — Stocks are drifting lower on Wall Street Friday following some discouraging readings on the global economy and another slew of profit reports from big U.S. companies.

The S&P 500 was 0.6% lower, as of 11:30 a.m. Eastern time, following a three-day rally that had carried it back to its highest level in six weeks.

The Nasdaq composite was leading the market lower with a 1.4% drop following weaker-than-expected profit reports from Snap, Seagate Technology and other tech-oriented companies. The Dow Jones Industrial Average was holding up better than the rest of the market, down 56 points, or 0.2%, at 31,980, in large part because constituent American Express gave an encouraging earnings report and said its cardholders were spending more.

Sandwiched between last week’s dispiriting report on inflation and next week’s decision by the Federal Reserve on interest rates, the S&P 500 is still on track for its best week in a month following a collection of mostly better-than-expected reports on corporate profits.

Falling yields in the bond market also helped, easing the pressure on stocks after expectations for rate hikes by the Fed sent yields soaring much of this year.

On Friday the two-year Treasury yield tumbled again, to 2.95% from 3.09% late Thursday and from 3.14% a week ago, on worries about the economy. A report Friday morning indicated U.S. business activity may be shrinking for the first time in nearly two years, with service industries particularly weak.

“Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook,” Chris Williamson, chief business economist at S&P Global Market Intelligence said in a statement accompanying the survey data.

Similar reports earlier in the morning also suggested weakness across Europe, underscoring how fragile the global economy is as central banks jack up interest rates in order to whip inflation. Higher rates make economic conditions more difficult, and the threat is that too-aggressive hikes could cause a recession.

The reports follow several others from earlier in the week that showed parts of the U.S. economy are slowing more than expected. While that raises the threat of a recession, it also has traders pulling back expectations for how aggressively the Federal Reserve will raise interest rates next week.

Instead of a mega-hike of a full percentage point, traders now see an increase of 0.75 percentage points as the most likely outcome. A less-aggressive approach could give some support to stocks, which have tumbled for most of this year on worries about higher interest rates.

The 10-year Treasury yield fell to 2.77% from 2.91% late Thursday.

In the stock market, American Express rose 3.3% after it delivered better profit for the spring than analysts expected. It said customers spent more on travel and entertainment in April than they did before the pandemic, the first time that's happened.

The encouraging data bolstered some recent comments from CEOs at big banks, who said their customers appear to be in solid financial shape despite all the worries about inflation and the economy.

HCA Healthcare surged 12.6% for the biggest gain in the S&P 500 after delivering better results than Wall Street forecast. Oilfield services provider Schlumberger rose 5% after it also reported stronger profits than expected.

Several big names in the technology field slumped, though, after reporting disappointing figures.

Snap, the company behind the Snapchat app, tumbled 38% after it reported a worse loss and weaker revenue for the spring than Wall Street forecast.

Data storage company Seagate Technology lost 7.8% after it said anti-COVID measures in Asia and a slowing global economy last quarter hit its results, which fell short of forecasts.

Verizon fell 6.5% after its profit fell short of forecasts, though its revenue squeaked past. It also cut its forecast for earnings this year.

Stock markets overseas were mixed.

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AP Business Writer Elaine Kurtenbach contributed.