Dow turns positive, stocks pare losses as market heads for second weekly gain to kick off 2023

Need to Know: Tesla is a ‘soft-landing’ stock, says Goldman Sachs. Here are its picks for a gentle slide as well as a rough landing.

What’s driving markets?

Corporate news was the market’s main focus on Friday as banks and other companies rolled out their results for the quarter ended in December.

Typically, the release of megabank earnings marks the unofficial start of the U.S. earnings season, and market analysts will be watching closely this quarter for indications of how America’s largest companies are bracing for an expected economic downturn driven by higher interest rates.

In the spotlight Thursday were shares of JPMorgan Chase JPM, +1.48%, Wells Fargo & Co. WFC, +0.13%, Bank of America BAC, +0.83% and Citigroup C, +1.04%. Shares of the big banks were mixed in mid-morning trade as they erased the steep declines that followed the publication of their results.

Shares initially sunk as investors focused on weak income from capital markets and investment banking segments instead of the banks’ overall earnings, analysts said. They were also perturbed by larger-than-expected loan-loss reserves set aside to gird against a spike in defaults.

“They’ve had some difficult hurdles with loan-loss reserves and no capital markets activity,” said Art Hogan, chief market strategist at B. Riley Wealth, while discussing the big banks’ earnings. “It’s intuitive to see the kind of action we’re seeing this morning.”

Hogan and other analysts said that stocks could be vulnerable to a pullback after such a strong start to the year.

Katie Stockton, a technical strategist at Fairlead Strategies, said the CBOE Volatility Index VIX, -2.18%, otherwise known as “the VIX” or the Wall Street “fear gauge” was showing signs of complacency after the strong rally in stocks earlier in the week. The index stood at 19.3 early Monday, not far from its August lows.

“The preceding three-day rally instilled enough confidence to bring the VIX back to levels associated with August’s peak. This indicates some complacency, and because it occurs in absence of a breakout, it creates a fragile backdrop for equities,” Stockton said in a note to clients and reporters.

See: JPMorgan, Wells Fargo, Bank of America and Citi beat earnings expectations, but worries about ‘headwinds’ remain

Despite Thursday’s CPI report showing inflation easing further in December, futures traders have cemented expectations for more Federal Reserve interest rate hikes in February and March.

Read: Why earnings season could be a ‘market-moving event’

More U.S. economic data was on the way Friday one day after the inflation report showed the first monthly decline in consumer prices in more than two years. Stocks saw a choppy day of trading on the back of that, which to some was a sign investors had their hopes even higher for that ease in prices.

Read: Why the stock market isn’t impressed with the first monthly decline in consumer prices in more than 2 years

U.S. import prices rose in December as the dollar weakened, breaking a streak of monthly declines. The University of Michigan consumer sentiment index for January climbed to 64.6, its highest level in nine months, as expectations for the rate of inflation one year out moderated.

Stocks pushed higher Thursday after St. Louis Federal Reserve Bank President James Bullard said the probability of a soft landing for the economy has increased due to “encouraging” inflation data.

He was followed by Philadelphia Fed President Patrick Harker, who said quarter-point moves would likely be appropriate going forward. Speaking again on Friday, Harker said a soft landing for the economy was still possible. He also said he favors getting benchmark rates above 5%.

Across other markets, the U.S. dollar was down 0.3% against the Japanese yen USDJPY, -1.12% as the Bank of Japan bought more bonds after the benchmark 10-year Japanese government bonds breached the 0.5% cap it set just under a month ago. The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, 3.470% was up 1 basis point to 3.467%.

Companies in focus

• JPMorgan JPM, +1.48% reported fourth-quarter earnings and revenue before the bell that topped Wall Street expectations but said a mild recession is now the “central case.”
• Wells Fargo WFC, +0.13% declined after reporting falling profits, hit by a recent settlement and the need to build reserves.
• Bank of America BAC, +0.83% reported earnings per share of 85 cents last quarter, above the 77 cents a share expected by analysts. Revenue also beat expectations. However, the bank’s net interest income fell slightly below expectations despite jumping interest rates.
• Delta Air Lines DAL reported fourth-quarter profit and revenue before the bell that beat expectations but the stock fell afterward.
• Tesla TSLA, -2.89% fell sharply after the company cut prices in the U.S. and Europe again, according to listings on the company’s website Thursday night. The stock lost 65% in 2022.
• Shares of UnitedHealth Group Inc. UNH traded lower after the health-insurance giant shared its results.
• BlackRock Inc. BLK, -0.32% shares fell after the asset-management giant reported a decline in fourth-quarter results.