The S&P 500 drops slightly on Friday, but heads for its second straight winning week

Stocks swirled on Friday as investors digested bank earnings, but the S&P 500 remained on course for its best week since November and its second straight winning week as investors bet inflation would decline in 2023.

All major indices were trading well above their session lows. The broad market S&P 500 and the Nasdaq Composite fell 0.4%. The Dow Jones Industrial Average hovered above the flat line.

Stocks are still heading for a winning week, with the Nasdaq on track for its second consecutive week of gains and its best weekly performance since November. The tech-heavy index is up more than 3% for the week. The S&P rose almost 2%, while the Dow Jones gained more than 1%.

Bank earnings weighed on stocks to start the day, but sentiment reversed late morning after investors appeared to ignore the negative news that was expected to some extent anyway, according to Ross Mayfield. investment strategy analyst at Baird.

“We didn’t really expect financials to have a successful quarter,” he said. “It’s just creating a wave of sentiment, and since the banks are leading the earnings season, they can kind of set the tone for how investors view the big picture.”

By late morning, most major bank stocks had moved into the green.

JPMorgan Chase posted revenue above expectations, but the bank warned it was setting aside more money to cover credit losses as a “mild recession” is its “central case”. The bank recorded a provision for credit losses of $2.3 billion in the quarter, a 49% increase from the third quarter.

Bank of America fell slightly despite reporting better-than-expected fourth-quarter earnings. The company echoed JPMorgan’s concerns about the economy. It is bracing for a mild recession in 2023, including a scenario where unemployment rises rapidly, CEO Brian Moynihan said on a call with investors.

Wells Fargo was down, however, after announcing that its last quarter profits had been cut in half.

“Frankly, the market has rallied pretty well over the past few weeks, with no catalyst, so there might just be a bit of profit taking on the earnings season,” Mayfield added.

Elsewhere, Delta Air Lines reported better-than-expected earnings and revenue for the final quarter of 2022. However, the stock fell about 4%. Investors were waiting for these results to better understand the health of the economy.

In economic data, the University of Michigan Consumer Sentiment Survey showed the year-on-year inflation outlook down to 4%, the third straight monthly decline and the lowest level since April. 2021.

This followed the December CPI report, released on Thursday, which showed prices were down 0.1% from November. As prices rose at a 6.5% pace from a year earlier, the results bolstered hopes that the Federal Reserve may soon slow its rise.

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