Dow, S&P 500 ease back from records with earnings week, banks and risk taking in focus

How are stock benchmarks performing?

• The Dow Jones Industrial Average
  DJIA,
  -0.16%
  slipped 109 points to trade near 33,692, a decline of 0.3%.
• The S&P 500 index
  SPX,
  -0.06%
  gave up 8 points, or 0.2%, to about 4,120.
• The Nasdaq Composite
  COMP,
  -0.42%
  fell 74 points to about 13,825, a loss of 0.5%.

On Friday, the S&P 500 closed out a 2.7% weekly gain, while the Dow rose 2% for the week and the Nasdaq Composite posted a 3.1% weekly rise. The S&P 500 and the Dow booked their third straight weekly gains, while the Nasdaq has climbed for two weeks in a row.

What’s driving the market?

Big banks this week are set to kick off first-quarter earnings season, likely providing a snapshot of the overall health of major U.S. corporations a year into the COVID crisis and perhaps providing insight into ongoing risks in financial markets.

“I think people will be listening to the bank announcements from the standpoint of assessing what other risks might be out there,” said John Carey, director of equity income U.S. at Amundi Pioneer, pointing to last month’s flameout of Archegos Capital Management, a highly leveraged family office that imploded, dealing stinging losses to several large investment banks.

“Investors will perk up their ears when they’re hearing what management has to say about risk control and loan exposures, especially in prime brokerage,” Carey told MarketWatch.

With stock indexes trading near record levels, Keith Lerner, chief market strategist for Truist Advisory Services, said another focus will be whether the recovery looks on pace to meet investor expectations. “A lot has been priced in, and the market is looking for earnings to confirm that that’s the correct move. The hurdle rate for positive surprises has moved up.”

Lerner thinks that the Fed will remain “supportive” and that, even if bond yields rise, the market should absorb the next leg higher, as long as it isn’t too steep, he said.

“We’ve had a very gradual but steady [and] low-volatility move to new highs,” Lerner said in an interview. “I still think the primary market trend is higher, but, as we head into earnings, I suspect we start trading a little more range-bound. When the primary trend is higher, you don’t want to worry about the hiccups.”

Some strategists fear, however, that stock valuations remain elevated despite uncertainties that include inflation, the success of the vaccination campaign globally and the U.S. tax regime.

Stocks mostly ended at record levels last week, and the Nasdaq Composite, after falling into correction territory in March — defined as a drop of at least 10% from a recent peak — stands less than 2% from its Feb. 12 all-time closing high. Gains for equity benchmarks have come despite concerns about the potential for out-of-control inflation and the possibility that President Joe Biden will raise the corporate tax rate to 28% from 21% to help fund his $2.4 trillion jobs and infrastructure proposal.

Last month as stimulus checks rolled out under the latest $1.9 trillion pandemic aid package, the U.S. budget deficit soared to $660 billion in March from February, the U.S. Treasury Department said Monday.

See: The biggest ‘inflation scare’ in 40 years is coming—what stock-market investors need to know

But St. Louis Fed President James Bullard said Monday that the inflation risks won’t likely become clear until later this year, in an interview on Bloomberg Television.

Fed Chairman Powell said in a Sunday “60 Minutes” interview that the economy is going to start growing strongly in the second half of the year but emphasized that that rebound shouldn’t lead anyone to believe that the central bank would dial up interest rates in 2021.

Read: Wall Street comes to grips with a Fed that will do what it says

The Federal Reserve chief also said the economy “seems to be at an inflection point,” with strong growth coming “right now” and with weakness caused by the coronavirus pandemic in the rearview mirror.

Central-bank officials largely have said they expect a rise in inflation to be transitory and have repeatedly stated that they would be focused on ensuring that the labor market makes a full recovery before considering easing policy.

In Europe, Germany was preparing new COVID-related legislation, which would enable the eurozone’s largest economy to impose national restrictions without regional government approval. England has reopened hair salons and pubs for outdoor drinking after a three-month lockdown.

Which companies are in focus?

• Nvidia Corp.
  NVDA,
  +5.86%
  shares rose 5.8% after its chief executive introduced a new central processing unit to crunch reams of data, with technology based on its acquisition target ARM Holdings PLC, during its annual GTC conference. The company also expect revenue to beat it prior $5.3 billion Q1 forecast.
• Tesla Inc.
  TSLA,
  +3.68%
  shares were 3.1% higher after another analysts suggested its stock price will shoot past $1,000, thanks in this case to the Silicon Valley car maker’s yearslong lead in battery and energy storage technology.
• Apple Inc.
  AAPL,
  -1.30%
  shares were down 1.3% after a Bloomberg report suggested it plans to equip its Apple TV streaming devices with a built-in speaker and a camera for videoconferencing.
• Shares of Nuance Communications
  NUAN,
  +15.90%
  surged more than 16% Monday after Microsoft Corp.
  MSFT,
  +0.14%
  confirmed it would buy the artificial-intelligence company for about $16 billion.
• Regeneron Pharmaceuticals
  REGN,
  +0.09%
  said Monday that it would ask the Food and Drug Administration to expand the authorized use of its antibody drug among people exposed to the virus who haven’t yet been vaccinated, suggesting potential new preventive applications for the drug, which is already in use to treat COVID-19 cases. Shares fell 0.8%.
• Uber Technologies Inc. shares
  UBER,
  +2.86%
  were 3.6% higher after the company said Monday morning that overall gross bookings reached their highest monthly level in the company’s history in March.
• Shares of Ingersoll-Rand Inc.
  IR,
  -0.78%
   were off 1.2% at midday Monday, after the diversified industrial company announced a deal to sell Club Car for about $1.7 billion.

How are other assets faring?

• The ICE U.S. Dollar Index
  DXY,
  +0.00%,
  a measure of the currency against a basket of six major rivals, was down 0.1% at 92.02.
• U.S. crude
  CL.1,
  +0.62%
  for May delivery
  CLK21,
  +0.62%
  gained 38 cents, or 0.6%, to settle at $59.70 a barrel on the New York Mercantile Exchange, after losing 3% last week.
• The 10-year Treasury note yield
  TMUBMUSD10Y,
  1.672%
   was up about 1 basis point near 1.67% ahead of a busy week for the bond market. Bond prices move inversely to yields.
• Gold futures closed down, with the June contract
  GCM21,
  -0.77%
   $12.10, or 0.7%, lower, to settle at $1,732.70 an ounce on Comex.
• In Europe, the Stoxx 600 index
  SXXP,
  -0.46%
  closed 0.5% lower, while London’s FTSE 100
  UKX,
  -0.39%
   ended down 0.4%.
• In Asia, the Shanghai Composite SHCOMP finished 1.1% lower, Hong Kong’s Hang Seng HSI closed down 0.9%, and Japan’s Nikkei 225 NIK lost 0.8%.

Mark DeCambre contributed.