U.S. stocks dipped Thursday as investors continued to monitor a steady stream of corporate earnings results against a backdrop of elevated inflation and further Fed policy tightening.
The S&P 500 fell Thursday afternoon to erase earlier gains. The Dow Jones Industrial Average also turned lower. The Nasdaq fell and extended Wednesday’s losses, when the tech-heavy index was weighed down by a slide in shares of Netflix. Meanwhile, Tesla (TLSA) shares jumped after the electric vehicle-maker handily exceeded expectations in its fiscal first-quarter results.
The so far mixed quarterly earnings results this reporting season have stirred up uncertainty over whether corporate profits will be able to bolster equity markets operating in an already challenging economic environment. With inflation running at its fastest rate in 40 years and weighing on economic activity, and the the U.S. Federal Reserve on track to ramp up its tightening regime despite decelerating growth, many pundits have warned of further choppiness in risk assets.
“The big question is whether the earnings can really sustain this kind of a macro backdrop of slower growth and [tighter] Fed policy,” Deepak Puri, Deutsche Bank wealth management chief investment officer, told Yahoo Finance Live on Wednesday. “It seems certain companies can — historically that’s been the case. What’s different this time is really the trifecta, which is higher costs of capital, quantitative tightening, plus a lack of … a big fiscal stimulus.”
A similar market environment was seen in 2017 and 2018, when the Federal Reserve last raised interest rates before this year, Puri added. However, at that time, a reduction in the corporate tax rate under the prior administration had helped “cushion some of the burden of a higher cost of capital,” Puri said.
“This time around, I’m not really seeing much fiscal spending coming our way,” Puri said. “So it could be one of those times where the market might be a little bit more volatile than what participants expect.”
Other pundits also suggested tepid profit growth this…