Another roller-coaster day left Wall Street little changed Wednesday after stocks veered on worries about how badly a slowing economy will hit corporate profits.
The S&P 500 finished virtually unchanged, but only after the benchmark index tumbled to a morning loss of 1.7%, and then rallied back. The Dow Jones Industrial Average erased a 460-point loss to finish up 9 points. The Nasdaq composite fell 0.2% after coming back from a 2.3% drop.
Such big swings have been common on Wall Street as markets work through competing ideas. On one hand, worries are rising about weakening profits and an economy bending under the weight of interest rate increases by the Federal Reserve. On the other are hopes the economy can avoid a severe recession and that cooling inflation will get the Fed to take it easier on rate increases.
"There's this Jekyll and Hyde market day to day," said Anthony Saglimbene, chief market strategist at Ameriprise. "What narrative is driving the market: a soft landing or harder landing?"
Early Wednesday, the latter was driving trading.
Microsoft helped lead the way lower after giving a forecast for upcoming results that fell short of some analysts' expectations. The company pointed in particular to expectations for slowing growth in its Azure cloud business.
Microsoft is one of Wall Street's dominant stocks because it's one of the largest, giving its stock movements more sway over the S&P 500 than others. Not only that, analysts say, Microsoft offers one of the best windows into the strength of corporate spending because of how many businesses use its software and services.
Microsoft Corp. fell as much as 4.6% Wednesday morning before paring its loss to 0.6%. Its weaker-than-expected forecasts helped drag down other stocks in the cloud-computing industry in the morning.
Worries are rising that corporate profits are set to shrink broadly because of a slowing economy, higher interest rates and persistent inflation.
Analysts are forecasting that S&P 500 companies over the next couple weeks will report their first drop in quarterly earnings per share since 2020, when the covid-19 pandemic was crushing the economy.
On Wednesday, Texas Instruments fell as much as 3.1% despite reporting stronger profit and revenue for its latest quarter than expected. Markets were more interested in the company's forecast for the first three months of 2023. Company officials said they're expecting continued weakening demand across all of its markets, excluding the automotive sector. Shares of Texas Instruments Inc. ended up paring its loss to 1.1%.
On the winning side was AT&T Inc., which rose 6.6% after reporting stronger profit than forecast.
Shares of electric vehicle-maker Tesla Inc. shook off a morning loss of as deep as 4% to rise 0.4% ahead of its earnings report, which arrived after trading ended for the day. That helped to steady the market given Tesla's large size.
Overall, the S&P 500 slipped 0.73 points, or less than 0.1%, to 4,016.22. The Dow rose 9.88 points, or less than 0.1%, to 33,743.48, and the Nasdaq fell 20.91 points, or 0.2%, to 11,313.36.
The level of cash and profit that companies produce is one of the main levers that set stock prices on Wall Street. The other big one depends largely on interest rates, and there's still a wide disconnect between what investors and the Fed see as coming later this year.
Many are expecting the Fed to raise its key overnight interest rate by a quarter of a percentage point Feb. 1. That would be another downshift in the size of the Fed's rate increases, down from half a point last month and four straight three-quarter-point increases earlier in 2022. A slowdown in inflation since a summertime peak is raising hopes for the Fed to apply less additional pressure on the economy.
Many investors expect inflation to keep cooling, and they're betting on the Fed to actually begin cutting interest rates toward the end of this year. The Fed, meanwhile, says it wants to keep rates high at least through the end of the year to ensure high inflation is truly stamped out.
Higher rates hurt the economy by making it more expensive for businesses and households to borrow. They also hurt prices for stocks and other investments.
The yield on the 10-year Treasury, which helps set rates for mortgages and other economy-dictating loans, dipped to 3.44% from 3.46% late Tuesday. The two-year yield, which moves more on expectations for the Fed, fell to 4.14% from 4.21%.
Information for this article was contributed by Damian Troise, Yuri Kageyama and Matt Ott of The Associated Press.