Wall Street saw some buyer fatigue after a solid equity rally, with investors scouring a batch of earnings for clues on the outlook for Corporate America amid mounting fears about a recession.

The S&P 500 halted a two-day advance. Just before the start of the tech earnings season, a few other bellwethers reported their numbers. The Dow Jones Transportation Average fell on disappointing results from Union Pacific Corp. 3M Co., the maker of Post-it notes, forecast profit that trailed estimates and said it plans to cut jobs. Homebuilder D.R. Horton Inc. beat projections.

A combination of mixed earnings and economic numbers is making investors hesitant to take on more risk particularly after an equity surge that drove the S&P 500 up more than 10 per cent from its mid-October low. U.S. business activity contracted for a seventh month, though at a more moderate pace, while a measure of input prices firmed in a sign of lingering inflationary pressures.

“You have to ask: Have investors taken stocks to levels that can’t be supported by what we are about to hear?” wrote Kenny Polcari, senior market strategist at Slatestone Wealth.

Corporate Highlights:

• The U.S. Justice Department and eight states sued Alphabet Inc.’s Google, calling for the break up of the search giant’s ad-technology business over alleged illegal monopolization of the digital advertising market.
• General Electric Co. continues to grapple with lingering issues in its renewable energy business, even as the slimmed-down manufacturer says strong demand for air travel will help boost overall profits this year.
• Johnson & Johnson guided to stronger earnings for 2023 than analysts were expecting after a year in which the pharma division suffered because of waning demand for its unpopular Covid-19 shot.
• Halliburton Co. boosted its dividend 33 per cent as the world’s biggest provider of fracking services follows its oil-and-gas clients by expanding shareholder returns amid tight global supplies for crude.
• Verizon Communications Inc.’s profit outlook trailed Wall Street estimates in a sign that the consumer wireless business continues to weigh down performance.

The popping of the bubble in U.S. stocks is far from over and investors shouldn’t get too excited about a strong start to the year for the market, warns Jeremy Grantham, the co-founder and long-term investment strategist of GMO.

“The range of problems is greater than it usually is — maybe as great as I’ve ever seen,” Grantham added.

A strong start to the year for U.S. tech stocks is facing a pair of technical roadblocks. 

The recent Nasdaq 100 rally has left the gauge just below the 23.6 per cent Fibonacci retracement of its 2021 record high and September low. That level acted as resistance three different times late last year, with rallies fading just above it each time. Even if it does manage a successful break, it will then face a test of its 200-day moving average, a line it hasn’t traded above in nearly a year.

‘NULL AND VOID’

The New York Stock Exchange said some trades will be declared “null and void” after determining a “system issue” resulted in a group of securities commencing trading without an opening auction price.

The exchange said that the trades will be reviewed as “clearly erroneous” under NYSE rules. That applies to trades in certain securities that did not conduct an opening auction, that occurred after the 9:30 a.m. bell but before certain pricing levels were set, and were executed further from the reference price, NYSE said in an updated statement on its website.

Now with the Federal Reserve’s Feb. 1 rate decision about a week away, traders in the options market are contemplating a scenario in which the rate hike it’s expected to deliver ends up being the last one of the tightening cycle.

The swap market is pricing around 48 basis points of rate hikes over the next two policy meetings. That implies a small chance — approximately 8 per cent — that if the Fed raises its benchmark rate by a quarter point next week, it could be the central bank’s final move in a tightening cycle that has marked the most aggressive action against inflation in several decades.

“It’s almost like people are trying to project forward toward the end the Fed tightening policy and trying to find a bottom here and a new bull-market rally,” said Jerry Braakman, chief investment officer of First American Trust. “But that’s in light of deteriorating economic statistics and I think that’s a little premature.”

Key events this week:

• Earnings for the week include: Abbott Laboratories, ASML Holding, AT&T, Boeing, International Business Machines, NextEra Energy, Tesla (Wednesday); American Airlines, Blackstone, Comcast, Diageo, Intel, LVMH Moet Hennessy Louis Vuitton, Mastercard, SAP, Southwest Airlines, Visa (Thursday); American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
• U.S. MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday
• U.S. fourth-quarter GDP, new home sales, initial jobless claims, Thursday
• U.S. personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 fell 0.2 per cent
• The Dow Jones Industrial Average rose 0.3 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at US$1.0882
• The British pound fell 0.4 per cent to US$1.2335
• The Japanese yen rose 0.4 per cent to 130.17 per dollar

Cryptocurrencies

• Bitcoin was little changed at US$23,018.84
• Ether fell 1 per cent to US$1,615.35

Bonds

• The yield on 10-year Treasuries declined five basis points to 3.46 per cent
• Germany’s 10-year yield declined five basis points to 2.15 per cent
• Britain’s 10-year yield declined eight basis points to 3.28 per cent

Commodities

• West Texas Intermediate crude fell 1.9 per cent to US$80.11 a barrel
• Gold futures rose 0.5 per cent to US$1,955.40 an ounce