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The Dow flipped negative in afternoon trade, while the S&P 500 and Nasdaq surpassed previous closing records on Monday, as investors looked ahead to one of the busiest weeks of earnings season and awaited a Wednesday update on the economic recovery from the Federal Reserve.

What are major benchmarks doing?
  • The Dow Jones Industrial Average
    DJIA,
    -0.04%
    fell 29 points, or 0.1%, to 34,014.
  • The S&P 500
    SPX,
    +0.27%
    gained 10 points, or 0.32%, to 4,190, exceeding its previous closing all-time high of 4,185.47 on April 16.
  • The Nasdaq Composite
    COMP,
    +0.87%
    added 117 points, or 0.8%, to 14,134, trading above its record finish of 14,095.47 hit February 12.

On Friday, stocks bounced back from a selloff the previous session triggered by reports President Joe Biden planned to push for a sharp rise in the capital-gains tax rate for Americans earning more than $1 million a year. Major benchmarks still suffered weekly losses, with the Dow
DJIA,
-0.04%
down 0.5%, the S&P 500
SPX,
+0.27%
off 0.1% and the Nasdaq Composite
COMP,
+0.87%
losing 0.3%.

Read: Capital-gains tax hike? Why the market bounced back so fast

What’s driving the market?

U.S. stocks are mixed Monday afternoon, but with two of three major indexes trading above their prior closing highs.

“I don’t expect any major increases in the indexes,” said Peter Cardillo, chief market economist at Spartan Capital, in an interview. “But I think the bull remains fully in charge, at least for the moment.”

Cardillo expects the spotlight to be on the week’s deluge of corporate earnings, wrangling over the Biden administration’s capital-gains tax proposal and Wednesday’s Federal Open Market Committee update and subsequent Fed Chair Jerome Powell press conference.

So far, it’s been an upbeat earnings season, with 181 S&P 500 companies, including 10 Dow components, reporting results. Investors will hear from tech heavyweights, with results due after the bell Monday from electric car maker Tesla Inc.
TSLA,
+0.93%
followed later in the week by Microsoft Corp.
MSFT,
+0.25%,
Apple Inc.
AAPL,
+0.45%,
Google parent Alphabet Inc.
GOOG,
+0.80%

GOOGL,
+0.77%,
Facebook Inc.
FB,
+0.59%
and Amazon.com Inc.
AMZN,
+2.30%.

“This week and next will provide the bulk of the remaining earnings. So far, results have far exceeded expectations. However, that hasn’t translated into a further surge in stock prices. That supports the notion that even though analysts underestimated the power of the recovery, investors did not,” said James Meyer, chief investment officer at Tower Bridge Advisors, in a Monday note.

Earnings Watch: Tesla and Big Tech are about to rev up the busiest week of earnings season

Through Friday, a quarter of S&P 500 companies had reported first-quarter results, leaving the index with the highest year-over-year growth in earnings since the third quarter of 2010, according to John Butters, senior earnings analyst at FactSet.

Analysts also expect double-digit earnings growth for the remaining three quarters of 2021, he noted. Above-average growth rates are due to a combination of higher earnings for 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on numerous industries, he said.

And in a sign of the growing optimism and certainty around the economic backdrop, more companies were announcing merger and acquisition deals on Monday.

Even with the positive economic momentum, policy makers aren’t expected to make any material changes to the current dovish monetary stance following the Fed’s two-day policy meeting that concludes Wednesday.

Economic Preview: Tone of next week’s U.S. economic data on track to be positive but the Fed will remain tone-deaf

“There is no question the Fed is going to have to acknowledge that the macro environment has been much stronger than expected, and that the economy likely is going to be showing explosive growth in third and fourth quarters,” Cardillo said. Even so, he doesn’t expect to hear, yet, that the FOMC wants to taper its near $120 billion a month bond-purchase program.

Read: Why the Fed’s focus on those hardest-hit by the pandemic matters for markets

At his Wednesday news conference, Powell’s tone is unlikely to change much, analysts said. While the chairman’s assertions that rates are unlikely to be lifted before 2022 will probably be challenged over the coming year, Powell is likely to stick to his position.

“While we believe the Fed is likely to act to contain inflation if it trends above 2.5% in the coming years, we see risk of the Fed being late to act or unwilling to risk damaging the economy short-term to contain inflation longer-term,” David Bianco, chief investment officer, Americas, DWS Group, wrote Monday. “For a long and prosperous cycle, the bond market must guard against inflation risk and be the disciplinarian for these fiscal and monetary policies.”

Mark Hulbert: Why it’ll take more than easy money from the Fed to keep sparking this bull market in stocks

March durable-goods orders rose 0.5% last month, falling short of forecasts for a 2.2% increase from February.

The data reflected a sharp decline in commercial and military aircraft sales but also pointed to the impact of shortages of supplies and raw materials that have gummed up supply chains.

Which companies are in focus?
  • U.S. health officials on Friday lifted an 11-day pause on Johnson & Johnson
    JNJ,
    -0.95%
    vaccinations following a recommendation by an expert panel. Shares of the drugmaker fell 1%.
  • Otis Worldwide Corp.
    OTIS,
    +6.47%
    shares gained 6.4% after the elevator and escalator manufacturing and services company easily topped estimates for the first quarter and raised its full-year guidance. 
  • Shares of Flagstar Bancorp Inc. 
    FBC,
    +8.87%
    shot up 9.2%, after the Michigan-based bank announced an agreement to be acquired by New York Community Bancorp. Inc. 
    NYCB,
    +5.46%
    in a stock deal valued at $2.6 billion.
  • W.R. Grace & Co
    GRA,
    +6.44%
     announced Monday an agreement to be acquired by privately held Standard Industries Holdings Inc. in a deal valued at $7.0 billion. Its shares were up over 5.6%.
  • Apple Inc.
    AAPL,
    +0.45%
    announced the company intends to make new U.S. investments of $430 billion over five years. Apple shares were 0.2% higher.
  • Shares of Proofpoint Inc.
    PFPT,
    +31.04%
     rocketed 30% higher after the cybersecurity and compliance company announced an agreement to be acquired by private-equity firm Thoma Bravo in a cash deal that values the company at $12.3 billion. 
How are other assets faring?

William Watts contributed reporting

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