The S&P 500 was little changed as US traders returned from a holiday. Goldman slid after reporting fourth-quarter net revenue below expectations. Whirlpool fell as sales numbers missed. Pfizer retreated after Wells Fargo predicted earnings downgrades for the pharmaceutical company. Morgan Stanley rose as its wealth-management business boosted revenue above forecasts. 

Earnings may set the tone for traders this week as the reporting season moves up a gear. Of the 33 S&P 500 companies that have posted results so far, 25 have beaten analysts’ expectations. While it’s still early days in the season, the nascent trend lags buoyant surprises of earlier quarters. UBS Wealth Management expects “quite a bit of downside here on the earnings” in the US, according to Hartmut Issel, head of Asia Pacific equities. 

Earnings are developing into another challenge for investors who’ve had their expectations for a pause in central-bank tightening damped. European Central Bank chief economist Philip Lane said interest rates will have to move into restrictive territory to bring inflation back to target. BlackRock vice chairman Philipp Hildebrand said he saw no chance of policy easing this year. Data including a record increase in UK wages signalled further rate hikes are necessary.

“We’ve just hit pause and I am sure there’s some profit taking,” said James Athey, investment director at Edinburgh-based abrdn. “We‘re into the earnings season which likely brings with it risks and volatility. If you run a risk-parity or 60/40 book, you’ve done brilliantly already this year. It seems prudent to trim some risk.”

Several Federal Reserve officials will be speaking this week, providing more clues on their policy priorities. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers including ECB president Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

The dollar traded lower after swinging between gains and losses at least 16 times on Tuesday. The greenback is trading near the lowest level since April, with China’s reopening bringing back the risk-on sentiment and sparking the best start to a year for global equities in records going back to 1988.

The 10-year Treasury yield increased 6 basis points, while the two-year rate was little changed. Bonds across Europe fell. Oil contracts traded higher as traders weighed the chances of a revival in Chinese demand after the nation’s growth data was published.

Stocks trading in Hong Kong and mainland China closed in the red after China said its economic growth last year slowed as Covid restrictions hammered activity. But better-than-forecast fourth quarter and December data add to optimism it may be primed for a recovery.

Shares rose in Japan, while the yen slightly fell against the dollar as traders weighed the prospects of a possible change in policy by the Bank of Japan on Wednesday. The nation’s 10-year yield climbed above the central bank’s ceiling for a third day as traders added to wagers that it will adjust its yield-curve control policy. BM/DM