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US stocks took a pause on Monday after a strong rally in the previous session as investors shifted their focus to the headline inflation reading later in the week.
For most of the day, stocks struggled for direction amid disappointing earnings from Tyson Foods and Catalent and a short-lived rebound in regional banks.
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Shares of Catalent Inc slumped as the contract drug maker saw lower revenue and underlying earnings in 2023, while Tyson Foods suffered a surprise second-quarter loss and a cut to its annual revenue forecast.
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A recovery in regional lenders stocks ran out of steam by midday, with the KBW regional banking index pulling back after posting its best one-day performance in seven weeks on Friday.
According to preliminary data, the S&P 500 index rose by 1.85 points, or 0.04%, to close at 4,137.90 points, while the Nasdaq Composite Index rose 19.31 points, or 0.16%, to 12,254.72 points. The Dow Jones industrial average fell 53.96 points, or 0.16 percent, to 33,620.42 points.
The struggle for a clearer direction follows a rally on Friday, when US jobs data indicated resilience in the labor market.
“The bigger your day, the more good news people need to keep the market going higher each day in a row,” said Portfolio Manager Moez Kassam of Anson Funds.
The spotlight this week will be the Labor Department’s inflation reading on Wednesday, which is expected to show that the consumer price index (CPI) probably rose 0.4% in April after rising 0.1% in March. Producer prices, weekly jobless claims and consumer confidence data are all pending this week.
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The data this week should help investors gauge whether the Fed’s aggressive tightening cycle – including its most recent 25 basis point hike last week – is helping to curb inflation as well as whether stagflation fears are valid.
“The bigger picture is that inflation is going to stay high for longer and we’re heading into a recession,” said Michael James, managing director of equity trading at Wedbush Securities.
“Whether that is hard or weak remains to be seen, but until there is something to refute the bigger picture thesis, the overall market will still be somewhat range bound.”
The rally in regional bank stocks proved short-lived, with PacWest Bancorp paring gains after rallying as much as 30% earlier in the session after the lender sharply cut its quarterly dividend to boost capital.
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Shares of regional banks plunged most of the past week on concerns about the collapse of First Republic Bank.
“We’ve had some stabilization in mid-market bank stocks today because people are recognizing that prices are trending opposite to where the fundamentals were in fact,” said Carol Schliffe, chief investment officer at BMO Family Office.
Shares of Warren Buffett’s Class B company Berkshire Hathaway Inc rose after posting $35.5 billion in first-quarter profit, buoyed by gains from stocks like Apple.
Shares of Zscaler Inc rose after the cloud security company raised its annual outlook.
(Reporting by Shriyashi Sanyal and Shristi Ashar in Bengaluru; Editing by Nivedita Bhattacharjee, Magu Samuel and Deepa Babbington)
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