Stocks slip as rate worries compete with big bank profits

By STAN CHOE
AP Business Writer

NEW YORK (AP) — Stocks are slipping Friday as a swirl of competing forces spins Wall Street, from strong profits for financial giants to worries about interest rates and the economy’s strength.

The S&P 500 was 0.3% lower in morning trading. The Dow Jones Industrial Average was down 166 points, or 0.5%, at 33,863, as of 10:45 a.m. Eastern time, while the Nasdaq composite was 0.6% lower.

Stocks are still on track for a weekly gain, built in part on hopes that the Federal Reserve may soon end its hikes to interest rates as inflation cools. High rates can stifle inflation but only by hurting the economy, raising the risk of a recession and dragging on prices for investments.

A top Fed official dampened those hopes Friday after saying progress has stalled and that more hikes to interest rates are needed. Christopher Waller, a member of the Fed’s governing board, also said that even after hikes end, rates will likely need to stay high for longer than markets expect.

After the comments, traders built bets that the Fed will raise rates by a quarter of a percentage point in May. Some even began betting the Fed may also hike rates in June, according to data from CME Group.

High-growth stocks tend to be among the most hurt by high rates, and several Big Tech stocks were among the heaviest weights on the S&P 500. Microsoft fell 1.4%.

Swaths of the economy have already begun slowing under the weight of higher interest rates, raising worries that a recession may be likely. A report on Friday showing U.S. shoppers cut their spending at retailers by much more last month than expected heightened the fears.

“The Fed’s challenge has been to cool inflation without putting the economy into a deep freeze in the process,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “The dynamic is still playing out in the markets, and we could see more choppy price action as a result.”

Potentially making things more difficult for the Fed was another report Friday that said U.S. households are girding for higher inflation. Consumers are expecting inflation over the next year of 4.6%, up from 3.6% a month earlier, according to a preliminary survey by the University of Michigan.

That could be troublesome, as the Fed has long feared entrenched expectations of high inflation could lead to a vicious cycle that keeps it high. Longer-term expectations for inflation, though, remain stable and clocked in at 2.9% for a fifth straight month, according to the survey.

All the worries helped push Treasury yields higher. The 10-year Treasury yield rose to 3.50% from 3.45% late Thursday. It helps set rates for mortgages and other important loans.

The two-year yield, which moves more on expectations for the Fed, rose to 4.09% from 3.97%.

Helping to offset some of the worries were big gains by several of the nation’s biggest banks. They reported profits for the first three months of the year that blew past expectations.

They helped kick off the reporting season for big U.S. companies, where expectations are mostly dismal. Despite such worries, JPMorgan jumped 7.6% after its profit surged by more than half from a year earlier.

It benefited from the strains unearthed in the banking system last month that shook global markets. Those worries pushed some customers to pull cash from smaller banks and move it to bigger ones.

Citigroup rose 3.1% after it also reported stronger profit than expected. BlackRock, the world’s largest asset manager, rose 3.2% after its earnings likewise topped forecasts.

Boeing was one of the heaviest weights on Wall Street. Its stock slid 6.2% after the aircraft maker said Thursday that production and delivery of a “significant number” of its 737 Max planes could be delayed because of questions about a supplier’s work on the fuselages.

Boeing said the supplier, Spirit AeroSystems, used a “non-standard manufacturing process” during installation of fittings near the rear of some 737s. Boeing said the situation is not an immediate safety issue and planes already flying “can continue operating safely.”

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AP Business Writers Joe McDonald and Matt Ott contributed.