By Sruthi Shankar and Ankika Biswas
(Reuters) - Wall Street was set to open lower on Tuesday following a mixed batch of earnings reports, while a plunge in deposits of regional lender First Republic Bank stoked concerns about the banking sector.
First Republic shares tanked 22.8% in premarket trading after the beleaguered lender reported a more than $100 billion flight in deposits in the first quarter following the biggest banking crisis since 2008 last month.
Other regional banks PacWest Bancorp and Western Alliance Bancorp fell 2.5% and 4%, respectively.
The KBW Regional Banking index and the S&P 500 bank index have shed 22% and 9%, respectively, so far this year as the collapse of two mid-sized lenders last month wreaked havoc on the banking sector.
"Rising interest rates are worrying depositors that small- and mid-sized lenders are going to be facing increasing difficulties, that their business models are too heavily dependant on a low interest rate environment," said Stuart Cole, head macro economist at Equiti Capital.
"The risk is that the cost of emergency funding proves too expensive for the smaller banks and the market deems them to be no longer profitable."
Graphic: U.S. bank stocks lag in 2023 after March crisis - https://fingfx.thomsonreuters.com/gfx/mkt/jnvwybxlevw/Pasted%20image%201682418457657.png
Investors are also concerned about the impact of elevated inflation and aggressive interest rate hikes by the Federal Reserve on companies' margins.
PepsiCo (NASDAQ:PEP) Inc rose 1.7% after raising its annual revenue and profit forecasts, while McDonald's Corp (NYSE:MCD) gained 1.3% after it beat estimates for quarterly global comparable sales and profit, boosted by higher menu prices and more customer visits.
General Electric (NYSE:GE) Co gained 2.3% on lifting the lower end of its full-year profit forecast, while General Motors Co (NYSE:GM) climbed 2.8% after the No.1 U.S. automaker raised its full-year profit and cash flow forecasts.
United Parcel Service Inc (NYSE:UPS) slid 5.0% after the delivery firm forecast full-year revenue to be at the lower end of its earlier estimate as it grapples with a weakening economy. Peer FedEx Corp (NYSE:FDX) lost 1.7%.
In a busy week for earnings, 178 of the S&P 500 companies are expected to report first-quarter results. Analysts have largely maintained their forecast of a near-5% drop in first-quarter profit for S&P 500 companies, according to Refinitiv data.
Earnings from trillion-dollar companies Alphabet (NASDAQ:GOOGL) Inc and Microsoft Corp (NASDAQ:MSFT) are due after market close on Tuesday.
At 8:44 a.m. ET, Dow e-minis were down 77 points, or 0.23%, S&P 500 e-minis were down 18.5 points, or 0.44%, and Nasdaq 100 e-minis were down 55.75 points, or 0.43%.
Investors are also awaiting the Fed's monetary policy decision in May for signals on the path of interest rates. Traders mostly expect the U.S. central bank to hike rates by 25 basis points next week and hold steady before cutting them later this year.
Consumer confidence data for April and new home sales unit data for March are also on tap after the opening bell.
Among other stocks, Spotify Technology SA climbed 6.1% after first-quarter monthly active users crossed the half-billion mark for the first time, while 3M (NYSE:MMM) Co gained 1.4% on the industrial conglomerate's plans to slash about 6,000 positions globally.