S&P 500, Nasdaq pare losses as inflation expectations ease

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By Ankika Biswas and Amruta Khandekar

(Reuters) - The S&P 500 and the Nasdaq pared losses on Friday on the back of easing inflation expectations and better-than-feared results from some U.S. banks, while gains in UnitedHealth kept the Dow afloat.

The University of Michigan's survey on Friday showed an improvement in U.S. consumer sentiment, with one-year inflation outlook falling in January to the lowest level since the spring of 2021.

This comes a day after U.S. consumer prices fell for the first time in more than 2-1/2 years in December, fueling hopes that a sustained downward trend in price pressures could give the Federal Reserve cover to scale down the size of its interest rate hikes.

Money market participants see a 91.6% chance the Fed will hike the benchmark rate by 25 basis points in February, but see the terminal rate at 4.9% by June.

On the earnings front, major U.S. banks stockpiled more rainy-day funds to prepare for a possible recession and reported weak investment banking results, but said consumers remained healthy and higher rates boosted profits.

JPMorgan Chase & Co (NYSE:JPM) and Bank of America Corp (NYSE:BAC), which beat quarterly profit estimates, reversed early declines to gain 1.2% and 0.6%, respectively.

"There were no disastrous (bank) reports," said Art Hogan, chief market strategist at B. Riley Financial.

"Combine that with the fact the University of Michigan consumer sentiment is stronger than expected, that paints the picture of an economy that may be slowing, but certainly not crashing."

Wells Fargo (NYSE:WFC) & Co and Citigroup Inc (NYSE:C) fell short of quarterly profit estimates.

Earnings from the big banks, which kicked off the quarterly reporting season, had been awaited in earnest for clues on outlook for the U.S. economy amid worries that the Fed's aggressive monetary tightening would lead to a recession.

Meanwhile, Tesla (NASDAQ:TSLA) Inc slipped 3.8% after slashing prices on its electric vehicles in the United States and Europe by as much as 20% after missing 2022 deliveries estimates.

Most major S&P 500 sector indexes were in the red. Healthcare stocks bucked the trend with a 0.4% rise.

Keeping the pressure off the Dow, UnitedHealth Group Inc (NYSE:UNH) rose 2% after beating Wall Street expectations for fourth-quarter profit.

Hopes of a less hawkish monetary policy stance by the Fed have supported equities in 2023, with the tech-heavy Nasdaq and the benchmark S&P 500 up 4.8% and 3.4%, respectively, this year.

At 11:43 a.m. ET, the Dow Jones Industrial Average was up 23.61 points, or 0.07%, at 34,213.58, the S&P 500 was down 12.44 points, or 0.31%, at 3,970.73, and the Nasdaq Composite was down 37.82 points, or 0.34%, at 10,963.28.

Delta Air Lines Inc (NYSE:DAL) dropped 4.1% as the company forecast first-quarter profit below expectations.

Declining issues outnumbered advancers for a 1.05-to-1 ratio on the NYSE and a 1.07-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and two new lows, while the Nasdaq recorded 66 new highs and six new lows.