By Sruthi Shankar and Ankika Biswas
(Reuters) -U.S. stocks were set for a muted open on Monday as investors awaited more bank earnings and views from Federal Reserve policymakers that could shape expectations around when the central bank will pause its monetary policy tightening.
Wall Street closed lower on Friday after mixed economic data appeared to affirm another Fed interest rate hike in May, dampening investor enthusiasm after a series of big U.S. bank earnings launched the first-quarter reporting season.
While banking heavyweights including JP Morgan Chase (NYSE:JPM) & Co reaped windfalls from higher interest payments, focus will be on smaller banks that were at the center of the banking turmoil last month as well as forecast from companies amid worries of a recession.
"Inflation fire has really been put out, but we're going to continue to pour water over it until we feel confident that it is so," Sam Stovall, chief investment strategist at CFRA Research said, adding that people were bracing for a deep recession that just might not come.
"Regional bank earnings will come in very slightly positive, while bigger banks will probably post surprisingly positive results."
Other major U.S. banks including Goldman Sachs Group Inc (NYSE:GS), Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS) will report through the week.
Analysts expect profits at S&P 500 companies to have declined 4.8% in the first quarter of 2023 from the year-earlier period, according to Refinitiv data, a slight improvement from last week's forecast of a 5.2% decline.
The S&P 500 and the blue-chip Dow are trading near two-month highs, following the selloff in March due to the banking crisis and fears about the Fed staying on a hawkish course for longer.
The U.S. central bank is widely seen raising rates by 25 basis points to the 5.00%-5.25% range next month, but recent economic data signaling a slowing U.S. economy have intensified debate over whether it will be the last in this cycle.
Traders' bets of a 25-bps hike in May have risen to nearly 90% from 78% last week, according to CME Group's (NASDAQ:CME) Fedwatch tool.
U.S. Treasury yields touched session highs after data showed business conditions in New York state unexpectedly bounced back to expansion territory in April after slumping in the previous month.
At 8:44 a.m. ET, Dow e-minis were up 35 points, or 0.10%, S&P 500 e-minis were up 1.75 points, or 0.04%, and Nasdaq 100 e-minis were down 3.75 points, or 0.03%.
Alphabet (NASDAQ:GOOGL) Inc dropped 4.2% in premarket trading following a report that Samsung (KS:005930) was considering replacing Google with Microsoft Corp (NASDAQ:MSFT)'s Bing as the default search engine on its devices. Microsoft's shares rose 1.8%.
Prometheus Biosciences Inc rallied 69.9% after Merck & Co said it will buy the biotech company for about $10.8 billion.
Dell Technologies Inc slipped 3.3% as J.P.Morgan downgraded the PC maker's stock to "neutral", while HP Inc (NYSE:HPQ) gained 2.5% after the brokerage upgraded its stock to "overweight".
State Street Corp (NYSE:STT) fell 10.8% after the custodian bank reported a weaker-than-expected quarterly profit, while financial broker Charles Schwab (NYSE:SCHW) inched up 0.7% after upbeat results.