Stocks struggled for direction on Tuesday as investors sifted through a batch of quarterly earnings reports.
Among the most notable reports released this morning were those from insurance giant Travelers (TRV) and Post-It note maker 3M (MMM), though the two Dow Jones stocks went in decidedly different directions after their results.
Travelers stock jumped 3.7% after the insurance company said earlier that fourth-quarter revenue rose 6.9% year-over-year to $9.6 billion, beating the consensus estimate. Earnings per share fell 39% year-over-year to $3.44, in line with expectations.
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3M, meanwhile, fell 6.2% after the industrial conglomerate reported Q4 earnings of $2.28 per share on $8.1 billion in revenue – down 6.9% and 6.0% year-over-year, respectively. The company also said it expects adjusted sales growth to decline between 2% and 6% this year and that it will lay off 2,500 manufacturing workers amid weakening demand.
MMM is "facing rapid declines in consumer facing markets and that is a big red flag for a lot of investors," says Edward Moya, senior market strategist at currency data provider OANDA.
On the economic front, the S&P Global flash composite purchasing managers index rose to 46.6 in January from December's 45.0. "Services and manufacturing both contributed to the higher headline although it's important to note that both categories are still contracting, a recessionary characteristic," says José Torres, senior economist at Interactive Brokers. "Corporations reported weak demand as fragile consumer sentiment, higher interest rates and high prices weighed on purses and money-clips alike."
At the close, the Dow Jones Industrial Average was up 0.3% at 33,733, while the S&P 500 (-0.1% at 4,016) and the Nasdaq Composite (-0.3% at 11,334) ended with modest losses.
The Best Stocks for Rising Interest Rates
Chatter will likely keep building over the next several sessions about what the Federal Reserve may or may not do at next week's policy meeting. The central bank has issued seven straight rate hikes, and expectations are for even more to come down the pike.
The market is currently pricing in a 25 basis point rate hike (or, 0.25%) for the Fed's upcoming meeting, according to CME Group, which would mark the smallest increase since March 2022. Gargi Chaudhuri, head of BlackRock's iShares Investment Strategy, Americas, expects the Fed to eventually raise rates to between 5.0% and 5.25% – well above the current rate of 4.5% and 4.75%. "We do not expect the Fed to ease this year, even as growth slows, making it likely that we will see a recession in the U.S. in the second half of 2023," Chaudhuri says.
There are plenty of options for investors to position their portfolios for high interest rates, including with financials and value stocks. There's also this list of the best stocks for rising interest rates that could help mitigate the impact of additional rate hikes.
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