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Stocks fall slightly as Wall Street looks to build on S&P 500’s best week of the year

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Stocks bounced between gains and losses Monday as traders weighed the latest quarterly earnings reports and awaited key U.S. inflation data.

The Dow Jones Industrial Average dipped 40 points, or about 0.1%. The S&P 500 shed 0.3% and Nasdaq Composite fell 0.5%.

The moves came after a bounce-back week on Wall Street marked by earnings volatility. Quarterly results were again driving stocks on Monday, with Tyson Foods gaining more than 9% after beating earnings expectations, while Hasbro and medical device stock Zimmer Biomet fell after their reports. Shares of Amazon rose more than 2%, building on Friday’s post-earnings pop.

“Investor psychology is shifting almost week-to-week, meaning sticking to one’s investment convictions is about as hard (or painful) as ever, but also never more important in driving outperformance,” Raymond James strategist Tavis McCourt said in a note to clients. “Our conviction remains that economic strength will keep EPS keeps going higher along with interest rates, as we suspect we remain a long way from higher rates materially slowing demand in the economy.”

So far 56% of S&P 500 companies have posted quarterly earnings, with 77% beating earnings estimates and 76% topping revenue expectations, according to FactSet. However, there have been some disappointing results from high profile company, including Facebook-parent Meta, that have sparked major pullbacks for some stocks.

Shares of Netflix, still struggling after the company issued weak guidance in January, fell another 3% on Monday after investment firm Needham said the company’s current strategy could not win the streaming wars.

There are 76 S&P 500 companies set to post results this week. Three Dow components will provide quarterly updates, including Disney and Coca-Cola. Amgen, Take-Two Interactive and On Semiconductor are among the names that will report earnings on Monday.

Stocks were coming off a strong week, following the release of stronger-than-expected U.S. jobs data, while Big Tech names posted their latest quarterly results.

The S&P and Nasdaq Composite advanced on Friday for their fifth positive session in the last six, and the indices also posted their best week since December. The Dow slid 0.06% on Friday, but still managed to post a 1.05% gain for the week. The Russell 2000 meantime posted its first positive week in five and best week of 2022.

Last week’s gains follow a rocky start to the year for the major averages as rising rates prompted investors to shed growth names in favor of value-oriented areas of the market.

“It has been a raging bear market for high multiple stocks and for anything speculative in nature. It’s just been taken out to the woodshed. So there’s probably some value being created there now,” Morgan Stanley’s Mike Wilson said on “Squawk Box.” The strategist said he still recommends a tilt toward more defensive areas of the market and thinks the indexes may not have hit a bottom yet.

Some of the most beaten down areas of the market were bouncing back on Monday. Peloton shares surged 20% on reports that Amazon and Nike are lining up as possible suitors for the interactive fitness equipment maker. Shares of Snowflake jumped more than 5% after an upgrade from Morgan Stanley.

Elsewhere, shares of Spirit Airlines jumped 14% after Frontier Airlines announced a deal to merge with its low-cost competitor. The news appeared to boost sentiment among airlines generally, with shares of United and Delta Air Lines rising more than 2%.

Spotify saw its shares decline more than 3.9% after the company said it condemns past use of racial slurs by controversial podcast host Joe Rogan but would not remove him from the streaming site. Artists including Neil Young, Joni Mitchell and India.Arie have asked Spotify to remove their music in protest over Rogan.

Big inflation news also is on the horizon, with the Labor Department on Thursday set to release consumer price index data for January. The report is expected to show that inflation rose at a 7.2% pace from a year ago, which if accurate would be the fastest gain since February 1982.

“The fact stocks absorbed the blow-out jobs report on Friday is stoking some optimism about Fed tightening being priced in, although we’d be reluctant to jump to that conclusion (that said, a downside CPI on Thurs will cause a much larger rally than the selloff likely engendered by an upside reading),” Adam Crisafulli of VitalKnowledge said in a note Monday.

Markets have been bracing against the fallout from inflation and are now pricing in about a 35% chance that the Federal Reserve will hike its benchmark short-term borrowing rate by half a percentage point, or 50 basis points, in March.

Government bond yields were little changed Monday after racing higher following Friday’s unexpectedly strong nonfarm payrolls report for January. The benchmark 10-year note most recently yielded 1.92%.

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