The S&P 500 recorded a slim gain Tuesday due to the strength of several big tech stocks, following disappointing quarterly reports from healthcare conglomerate Johnson & Johnson and investment firm Goldman Sachs.
As the first-quarter earnings season kicked into gear, J&J shares fell 2.8 percent after the company warned investors about the lingering impact of inflation-driven costs this year, while Goldman shares dropped 1.7 percent due to a 19 percent decline in profit as dealmaking and bond trading slumped.
Investors have been preparing for a potentially difficult earnings reporting season, expressing concerns that the economy may be on the verge of a decline.
“What we are seeing here is the calm before the storm as far as earnings go,” said Brad McMillan, Chief Investment Officer of Commonwealth Financial Network. “The market is just trying to see, do we have some upside here or not, and I think it is really going to come down to earnings over the next couple of weeks.”
The benchmark S&P 500 index gained 3.55 points or 0.09 percent to close at 4,154.87. On the other hand, the Nasdaq Composite index lost 4.31 points to 12,153.41. The Dow Jones Industrial Average also fell 10.55 points to 33,976.63.
The technology sector, which includes heavyweight stocks, rose 0.4 percent, with shares of Nvidia Corp leading the way with a 2.5 percent increase after HSBC changed its recommendation on the graphics chipmaker from “reduce” to “buy.” The healthcare sector, however, dropped 0.7 percent, weighed down by J&J’s disappointing earnings report.
Earnings for S&P 500 companies are projected to have dropped by 4.8 percent in the first quarter compared to the same period last year, as per Friday’s Refinitiv IBES data.
Dollar slips as China’s GDP growth beats expectations
While S&P 500 had a slim gain, the U.S. dollar experienced a decline against major currencies following the release of better-than-expected growth data from China on Tuesday. China’s gross domestic product (GDP) grew by 4.5 percent year-on-year in the first quarter of 2023, surpassing analyst forecasts of a four percent expansion.
In addition to the impressive GDP growth, data on March activity in China showed that retail sales growth accelerated to 10.6 percent, reaching a nearly two-year high. Factory output growth also picked up, although slightly below expectations.
“The view on the dollar getting a bit weaker from here against the majors is predicated on a strong China,” said Thierry Wizman, division director of Macquarie Group. “When you have the rest of the world doing well or better than the U.S. in terms of activity… that’s usually bad for the dollar.”
As a result of the dollar’s decline, the euro rose by 0.37 percent to $1.0966 after two consecutive days of declines, while the dollar index slid by 0.372 percent. The index had risen by over one percent in the last two trading sessions. China’s offshore yuan also fell slightly by 0.02 percent at $6.8799.
Futures traders are currently predicting an 87.4 percent chance that the Federal Reserve will raise rates by 25 basis points during its next meeting in May, with expectations of rate cuts towards the end of the year.