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Stocks drop as reporting season kicks off

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US stocks fell sharply in the last hour of trading on Monday after news that Apple (AAPL) plans to slow down hiring and cut spending next year to prepare for a possible recession.

Bloomberg News reported on Monday afternoon that the hiring slowdown and cost cuts will occur in some divisions and will be due to a desire to “be more careful in uncertain times,” citing people familiar with the matter who asked to remain anonymous. Apple shares closed up 2.1%.

The S&P 500 and Nasdaq were down about 0.8% each, while the Dow Jones Industrial Average lost over 200 points, or 0.7%. Prior to the report, all three major indexes reached session highs of at least 1%.

The Wall Street Journal reported that Federal Reserve officials “have signaled they are likely to raise interest rates by 0.75 percentage points later this month.” Expectations for a 100 basis point Fed raise at its next meeting on July 26 and 27 rose last week following the release of a hot consumer price index (CPI) for June.

Bank of America (BAC) and Goldman Sachs summed up banking operations before the trading session on Monday. Goldman Sachs reported a smaller-than-expected 48% drop in second-quarter earnings as losses were partially offset by the strong performance of its fixed income trading business. Meanwhile, Bank of America’s earnings fell 34% due to lower investment banking revenues amid a slowdown in transaction activity.

The results come after the financial sector posted its best intraday rally since May on Friday, helped by a notable rise in Citigroup (C) numbers in the second quarter, a day after traders weighed in on disappointing financial results from JPMorgan (JPM) and Morgan Stanley. (MS).

JPMorgan chief Jamie Dimon warned Thursday in an earnings report that risks to the US economy appear “closer than they were before” and said the outlook will depend on “the effectiveness of quantitative tightening and defective, volatile markets.”

A similar comment is expected this week from corporate America’s leaders as more companies reveal how their businesses have weathered the turbulent past quarter. Not only are the numbers forecast to reflect more moderate earnings, traders are also bracing for a possible downward revision as companies describe the impact of price increases, quantitative tightening and the war in Ukraine on their business outlook.

“The most important indicator for the economy in the next few weeks will be company earnings reports,” said Garji Chaudhuri, head of investment strategy for iShares Americas at BlackRock.

NEW YORK, NEW YORK – JULY 12: A woman walks near the New York Stock Exchange on July 12, 2022 in New York City. Wall Street pulled back amid the recession, with the S&P 500 closing 1.2% lower, while tech stocks pushed the Nasdaq down 2.3%. (Photo by John Smith/VIEWpress)

“We will be monitoring whether companies can continue to raise prices for their consumers and which sectors are significantly revising their earnings forecasts for the future downward,” Chaudhury added. “We will also be watching to see how recessionary risks are flagged in the income statement.”

More than 70 companies will publish results this week. Big tech gains are expected to start rolling in, starting with Netflix (NFLX) after Tuesday’s market close, Tesla (TSLA) after Wednesday’s bell, and Twitter (TWTR) before trading on Friday.

Market moves on Monday came after a rally on Friday when stocks closed sharply higher as Wall Street tried to bounce back from a turbulent week driven by the shocking June CPI report. However, the S&P 500, Dow and Nasdaq ended the week lower.

Alexandra Semyonova, correspondent for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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