Wall Street’s rally fades as Middle East angst overshadows earnings optimism

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By Niket Nishant and Avinash P

April 21 (Reuters) – Wall Street’s main indexes were subdued on Tuesday, as renewed concerns about the Middle East war halted an early rally in stocks and overshadowed earnings optimism.

Pakistan is still awaiting a formal response from Iran to confirm that it will send a delegation to attend a second round of peace talks with the U.S. in Islamabad, the country’s Information Minister Attaullah ​Tarar said in a post on X.

The talks are scheduled against a fragile backdrop. In an interview with CNBC earlier, U.S. President Donald Trump said he does not want to extend the ceasefire with Iran, which is set to expire soon.

A failure to resume the discussions could swiftly upend investors’ assumptions that peak uncertainty related to the war has passed.

At 11:52 a.m. ET, the Dow Jones Industrial Average fell 87.88 points, or 0.18%, to 49,354.68, the S&P 500 lost 19.21 points, or 0.27%, to 7,089.93 and the Nasdaq Composite slipped 38.08 points, or 0.16%, to 24,366.32.

All the indexes were in positive territory earlier in the session.

“Relief rallies only get you so far when the underlying risks keep returning,” said John Wyn-Evans, head of market analysis at Rathbones.

WARSH HEARING IN FOCUS

Investors are also parsing comments from Kevin Warsh, Trump’s nominee to lead the Federal Reserve, whose confirmation hearing was underway in the Senate on Tuesday.

He called for “regime change” at the U.S. central bank that would include a new “framework” for controlling inflation and a possible overhaul of how it communicates with the public about monetary policy.

Republican Senator Thom Tillis has promised to block Warsh’s confirmation until the Department of Justice ends an investigation into current Fed Chair Jerome Powell that Tillis says threatens the central bank’s independence.

The impasse could have far-reaching implications for monetary policy, especially as Trump has vowed to fire Powell if he does not leave when his term ends in May.

“The risk now is that if new leadership under Warsh does not take hold by mid-June, the Fed could delay that 25 bps rate cut and maintain a ‘wait-and-see’ stance instead,” said Atakan Bakiskan, U.S. economist at Berenberg.

EARNINGS, AI REASSURE INVESTORS

Optimism around AI and upbeat earnings have given investors some reason to cheer.

J.P. Morgan raised its year-end target for the S&P 500, citing AI and tech-driven earnings, while Amazon said on Monday it will invest up to $25 billion in Anthropic, signaling Big Tech is still willing to pour money into AI.

Amazon shares rose 1.8%, helping the S&P 500 consumer discretionary sector advance 0.4%. Energy stocks rose 0.5%, thanks to a jump in crude prices.

Of the 48 companies in the benchmark S&P 500 index that reported earnings as of last Friday, 87.5% surpassed analysts’ estimates, compared with a long-term average of 67.4%, according to LSEG data.

UnitedHealth jumped 7.6% after the healthcare conglomerate raised its annual profit forecast and beat Wall Street expectations for the first quarter. The stock was the biggest boost to the blue-chip Dow.

Peers CVS Health and Humana rose 0.5% and 4.7%, respectively.

GE Aerospace fell 5.8%. The company said it was bracing for a tougher backdrop of elevated oil prices, fuel supply constraints and slower global growth.

Alaska Air fell 3.2% as the airline withdrew its full-year profit forecast.

Apple was among the other stocks under the spotlight, falling 2.2%. The company said CEO Tim Cook would hand over the reins to longtime hardware boss John Ternus.

Separately, data showed that U.S. retail sales increased more than expected in March, while contracts to purchase previously owned U.S. homes surpassed estimates.

Declining issues outnumbered advancers by a 1.83-to-1 ratio on the NYSE and by a 1.65-to-1 ratio on the Nasdaq.

The S&P 500 posted 48 new 52-week highs and three new lows, while the Nasdaq Composite recorded 135 new highs and 36 new lows.

(Reporting by Niket Nishant and Avinash P in Bengaluru; Editing by Devika Syamnath and Shinjini Ganguli)