Stocks waver as signs of future profit growth wobble

U.S. stock indexes spent Wednesday drifting, and most finished with small gains. Although big companies continue to report strong profit growth, investors aren’t sure how much longer it will last.

The Standard & Poor’s 500 index rallied 0.8% in the morning after fourth-quarter earnings from major companies including IBM, consumer products maker Procter & Gamble and manufacturer United Technologies. Later, traders focused on some less-encouraging quarterly reports and the muddled state of the U.S.-China trade talks, and the S&P 500 fell to a loss of 0.8% before it gradually turned higher.

Corporate profit growth jumped in early 2018 after the Republican-backed corporate tax cut, but Liz Ann Sonders, chief investment strategist for Charles Schwab, said corporate profits are now growing at a slower clip because of economic weakness in Europe and China and a steep decline in oil prices.

“Even if we end up with the best-case scenario on trade, it doesn’t alleviate global growth slowing, earnings uncertainty … [or] monetary policy,” she said.

The S&P 500 ended the day up 5.80 points, or 0.2%, to 2,638.70. The Dow Jones industrial average climbed 171.14 points, or 0.7%, to 24,575.62.

The Nasdaq composite edged up 5.41 points, or 0.1%, to 7,025.77.

Smaller companies’ stocks tend to do worse than larger ones’ when prospects for profit growth fades. The Russell 2000 index of smaller-company stocks slipped 3.20 points, or 0.2%, to 1,454.26. Most of the companies listed on the New York Stock Exchange finished with losses.

Energy companies fared the worst as the price of crude oil fell for the third time in four days after a strong start to 2019.

IBM jumped 8.5% to $132.89 after its fourth-quarter results beat Wall Street estimates. Investors were also pleased with the company’s forecasts for 2019. BMO Research analyst Keith Bachman said key operations including IBM’s business and technology services divisions did well in the quarter. IBM stock sank 25% in 2018.

Procter & Gamble rallied 4.9% to $94.84 after its profit and sales beat expectations. The company — which makes Tide, Bounty and Crest products — said its annual profit and sales could be slightly stronger than it previously expected.

Elevator and jet engine maker United Technologies staged its biggest rally in almost a decade, rising 5.4% to $117.04 after its quarterly report.

Media company Comcast jumped 5.5%, its biggest gain in almost three years, to $36.89 after it picked up more internet subscribers and got a revenue boost from Sky, its big bet on European TV.

Other corporate reports were less encouraging. Abbott Laboratories — which makes Ensure and Pedialyte nutritional shakes, heart devices and medications — fell 2.2% to $69.91 after its revenue disappointed investors. Credit card issuer Capital One slid 6.2% to $78.20 after its profit and revenue both fell short of expectations.

The corporate tax cut might aid U.S. company profits on a permanent basis, but as investors compared 2018 to the year before, the tax cut caused a big one-time increase in profit growth. Investors have always known that boost wouldn’t be repeated this year, and in recent months they’ve become more pessimistic, wondering if growth will slow dramatically or if profits might even start shrinking in the months ahead.

Charles Schwab’s Sonders said consumer confidence has been slipping, and the partial shutdown of the federal government — which has lasted a month — could make matters worse. She said numerous companies that perform contract work for the federal government might have to start laying off workers soon.

On Friday, federal employees will miss their second consecutive paycheck unless there is a deal to end the shutdown before then.

Stocks had slumped Tuesday as investors reacted to signs of slower global economic growth, including a weakened forecast from the International Monetary Fund. They also worried about possible trouble in trade talks between the United States and China.

White House economic advisor Larry Kudlow denied media reports saying the United States had turned down an offer by Chinese trade officials to meet this week because of a lack of progress on issues such as protection of intellectual property. Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer are scheduled to meet next week.

“It’s frustrating for investors who are trying to get a sense of what’s happening when you have members of the administration often contradicting each other,” Sonders said.

Bond prices slipped. The yield on the 10-year Treasury note rose to 2.74% from 2.73%.

U.S. crude oil fell 0.7% to $52.62 a barrel in New York. Brent crude, used to price international oils, fell 0.6% to $61.14 a barrel in London.

Wholesale gasoline fell 1.1% to $1.39 a gallon. Heating oil fell 0.7% to $1.89 a gallon. Natural gas fell 2% to $2.98 per 1,000 cubic feet. Gold stayed at $1,284 an ounce. Silver rose 0.4% to $15.38 an ounce. Copper slipped 0.2% to $2.65 a pound.

The dollar rose to 109.59 yen from 109.30 yen. The euro rose to $1.1383 from $1.1362.