S&P 500 falls slightly on Friday, but heads for its second winning week in a row

Stocks gyrated Friday as investors digested bank earnings, but the S&P 500 remained on track for its best week since November and second winning week in a row as investors bet inflation would ease in 2023.

All of the major indexes were trading well off their lows of the session. The broad market S&P 500 and the Nasdaq Composite dropped 0.4%. The Dow Jones Industrial Average wavered over the flat line.

Stocks are still headed for a winning week, with the Nasdaq on pace for its second consecutive up week and its best weekly performance since November. The tech-heavy index is up more than 3% for the week. The S&P has advanced almost 2%, while the Dow has added more than 1%.

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

“Financials weren’t really quite expected to have a blockbuster quarter,” he said. “It’s just providing a bit of a sentiment wave, and since the banks lead earnings season they can kind of set the tone for how investors look at the broader picture.”

By the late morning most of the big bank stocks had climbed into the green.

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

Bank of America fell slightly despite reporting better-than-expected earnings for the fourth quarter. The company echoed JPMorgan’s concerns about the economy. It’s preparing 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 lower, however, after reporting its profits for the last quarter had been cut by half.

“Frankly, the market has rallied pretty nicely over the last few weeks, absent a catalyst, and so there might just be a little bit of profit taking out of earnings season going,” Mayfield added.

Elsewhere, Delta Air Lines reported earnings and revenue that beat estimates for the final quarter of 2022. However, the stock slid about 4%. Investors have been awaiting these results to gain more insight into the health of the economy.

In economic data, the University of Michigan consumer sentiment survey showed the one-year inflation outlook down to 4%, the third straight monthly decrease and the lowest level since April 2021.

That followed December’s CPI report, released Thursday, which showed prices declined 0.1% over November. While prices rose at a 6.5% pace compared to the previous year, the results heightened hopes that the Federal Reserve may soon slow its hiking.