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Wall Street pulls back from the rally that pushed stocks to a 16-month high

A U.S. flag flies over an entrance to the New York Stock Exchange
Worries have been rising about unrealistic expectations for the U.S. stock market, which saw the Standard & Poor’s 500 index surge more than 19% this year through July.
(J. David Ake / Associated Press)
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Wall Street took a step back from its big rally so far this year, and most stocks fell Tuesday following a mixed set of earnings reports from U.S. companies.

The Standard & Poor’s 500 index slipped 12.23 points, or 0.3%, to 4,576.73, coming off its fifth straight winning month. The Nasdaq composite fell 62.11 points, or 0.4%, to 14,283.91. The Dow Jones industrial average eked out a gain of 71.15 points, or 0.2%, rising to 35,630.68 even though most of the stocks within it weakened.

Travel-related stocks helped drag the market lower after they gave up some of their big gains from earlier in the year. Norwegian Cruise Line lost 12.1% despite reporting stronger profit and revenue for the spring than expected. Expectations have been high for it and rivals after its stock soared 80% for the year through Monday.

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JetBlue Airways shares sank 8.3% on Tuesday to roughly halve its nearly 20% gain for the year through July, despite reporting better-than-expected profit for the latest quarter. It cut its forecast for full-year results, partly because of the cancellation of a partnership with American Airlines.

Worries have been broadly rising about overly high expectations for the entire U.S. stock market after the S&P 500 surged more than 19% this year. Stocks had leaped to a 16-month high on hopes that inflation is cooling enough to get the Federal Reserve to stop raising interest rates. That in turn could enable the economy to avoid a long-expected recession.

Despite more than a year of widespread warnings that a recession was near, America’s economy is, if anything, accelerating.

July 29, 2023

Although inflation has come down since the summer began and the economy has remained remarkably resilient, it’s no guarantee that inflation will continue to cool at the same rate. Critics say stock prices have risen too far, too quickly.

Among other stocks that struggled with high expectations Tuesday was Molson Coors Beverage. It fell 4.7% after reporting weaker revenue for the spring than expected, even though its profit topped expectations.

Most companies so far this reporting season have beaten forecasts, but that’s usually the case. And expectations were low coming into this season, with analysts calling for the worst decline in S&P 500 earnings per share in three years.

Among the winners on Wall Street on Tuesday was Caterpillar. It rose 8.9% after blowing past analysts’ forecasts for earnings during the spring. It was the stock pushing up the most on the Dow, where Caterpillar can have more of an impact than on the S&P 500 because of its high stock price.

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Arista Networks jumped 19.7%, the biggest gain in the S&P 500, after it also beat expectations for profit and revenue in the latest quarter.

Reports on the economy Tuesday came in mixed. The number of job openings advertised nationwide fell slightly in June, when economists were expecting a rise. But the U.S. job market broadly remains solid, propping up the rest of the economy and keeping it out of a recession so far.

A report from the Institute for Supply Management said the manufacturing industry shrank at a slightly worse pace in July than economists expected, but not as badly as it did in June. A separate report from S&P Global also said U.S. manufacturing is continuing to decline.

“However, producers are clearly shrugging off recession fears and planning for better times ahead,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Earnings reports scheduled for later this week could have more of an effect. Amazon and Apple are scheduled to report Thursday, and because they’re two of the biggest stocks by market value, their movements pack more punch on the S&P 500 than other companies’. Both have also soared this year, along with other Big Tech stocks.

Federal Reserve Chair Jerome H. Powell has also pointed to Friday’s upcoming report on the overall U.S. job market as an important data point. Growth needs to be strong enough to keep a lid on worries about a possible recession. But a reading that’s too hot could mean upward pressure on inflation, which could push the Fed to get more aggressive about rates.

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Inflation’s relentless surge didn’t merely persist in June. It accelerated. Here’s why.

July 13, 2022

High rates undercut inflation by slowing the overall economy and dragging down prices for stocks and other investments. The Fed has already hiked its main rate to its highest level in more than two decades, a shock after the rate began last year at virtually zero.

In stock markets abroad, indexes were mostly lower in Europe and mixed in Asia.

In the bond market, the yield on the 10-year Treasury rose to 4.03% from 3.97% late Monday. It helps set rates for mortgages and other important loans.

AP writers Yuri Kageyama and Matt Ott contributed to this report.

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