S&P 500 ends in the red on earnings disappointment; profitability falls

By Caroline Valetkevitch

NEW YORK (Reuters) – The U.S. stock market posted broad declines in early trading and ended the day with small losses on Thursday as disappointing earnings reports offset strong economic data and bond yields fell after a surprise drop in euro zone inflation data.

Investors were also cautious ahead of Friday’s US April jobs data. The US dollar fell in volatile trading.

US economic data, however, provided some encouraging news. The number of Americans receiving unemployment benefits fell to its lowest level since 1973, and the US trade deficit narrowed for the first time in seven months. Factory orders for March also rose.

Stocks on Wall Street ended lower, with the Dow and S&P 500 earlier falling below their 200-day moving averages – a key technical level – for the first time since early April. The Dow ended the day slightly higher.

On the earnings front, AIG stock fell 5.3 percent after the insurer reported lower-than-expected quarterly profit, while Cardinal Health fell 21.4 percent after the drug distributor lowered its full-year profit forecast.

Quarterly U.S. earnings were strong, but investors say there are growing concerns that corporate profits have peaked, with year-over-year earnings growth for S&P 500 companies estimated at more than 25 percent, according to Thomson Reuters data.

“The good news has now become bad news,” said Peter Kenny, senior market strategist at Global Markets Advisory Group in New York. “There’s really nothing to support stocks higher given this backdrop.”

Dow Jones Industrial Average Index <.DJI> rose 5.17 points, or 0.02 percent, to close the session at 23,930.15, the S&P 500 index <.SPX> lost 5.94 points, or 0.23 percent, to 2,629.73, and the Nasdaq Composite Index <.IXIC> fell 12.75 points, or 0.18 percent, to 7,088.15.

Pan-European FTSEurofirst 300 Index <.FTEU3> lost 0.70 percent, while the MSCI index of global shares <.MIWD00000PUS> lost 0.37 percent

A U.S. delegation led by Treasury Secretary Steven Mnuchin arrived in Beijing on Thursday to discuss tariffs, with Chinese media reporting the country will defy U.S. pressure.

Lingering concerns about the prospects for U.S. interest rate hikes contributed to the day’s cautious tone. The Federal Reserve’s two-day meeting ended Wednesday with no interest rate changes as expected, while the U.S. central bank said inflation had “compared” to its target, putting it on track to raise borrowing costs in June.

The Federal Reserve’s statement was not as hawkish as some had expected, although investors said it confirmed the prospect of more interest rate hikes.

The U.S. dollar has recouped all of its 2018 losses in the past two weeks on expectations that the Federal Reserve will continue to raise interest rates even as other major central banks around the world, including the European Central Bank, take longer to reduce stimulus.

Dollar Index <.DXY> fell by 0.07 percent and the euro rose 0.29 percent to $1.1985.

Friday’s U.S. jobs report for April will be assessed for further clues on labor market conditions and inflationary pressures.

In Europe, data showed euro zone inflation fell to 1.2% in April. Economists polled by Reuters had expected it to be unchanged from 1.3% in March.

This caused the yield on 10-year French government bonds to fall and German fell to its lowest levels in two weeks after the data was released.

The yield on the 10-year U.S. Treasury note fell to a two-week low, while the yield on the two-year Treasury note fell to its lowest in more than a week after hitting a 9.5-year peak in the previous session.

Benchmark 10-year bonds They were recently up 5/32 to yield 2.9477 percent, up from 2.964 percent on Wednesday evening.

Oil prices rose, driven by OPEC production cuts and potential new U.S. sanctions on Iran. Gains were capped by rising U.S. crude inventories.

Brent Crude Oil Futures rose 26 cents to close at $73.62 a barrel, up 0.35 percent. U.S. West Texas Intermediate crude futures Shares rose 50 cents to close at $68.43, up 0.74 percent.

Gold prices rose as the US dollar weakened. Spot gold rose 0.6 percent to $1,312.54 an ounce.

(Additional reporting by Sruthi Shankar in Bengaluru and Karen Brettell, Sinead Carew and April Joyner in New York; Editing by Bernadette Baum and James Dalgleish)