On Tuesday, the stock market gave up early gains and generally closed lower as investors weighed the latest quarterly earnings reports of major US companies and new data showing rising inflation.
The Standard & Poor’s 500 Index fell 0.4%, and most companies in the benchmark index fell. Banks, industrial stocks and companies that rely on consumer spending accounted for a large percentage of the decline.
Technology stocks bucked the trend and helped offset some of the broader decline. Small company stocks have suffered some of the worst losses.
The correction brought the major stock indexes slightly below the all-time highs set the day before. Treasury bond yields rose.
Investors evaluated the quarterly earnings reports of Goldman Sachs, JPMorgan Chase, Pepsi, and other large companies. They also learned how inflation continues to appear in the economy as rapid spikes in consumer demand and supply constraints translate into rising prices for consumer goods.
The latest report from the US Department of Labor showed that consumer prices rose again in June, which surprised economists.
Chief Investment Officer Alan McKnight said: “The earnings report for the most recent quarter is incredible, but some comments raised some questions,’Well, what will happen to the cost pressure in the future?'” In regional asset management. “Then you combine it with today’s inflation report and we see another high point.”
The Standard & Poor’s 500 Index fell 15.42 points to 4,369.21. The Dow Jones Industrial Average fell 107.39 points, or 0.3%, to 34,888.79. The Nasdaq Composite Index, which is dominated by technology stocks, fell 55.59 points, or 0.4%, to 14,677.65, while the Russell 2000 Index of small companies fell 42.96 points, or 1.9%, to 2,238.86.
Inflation has always been a lingering concern in the market as investors try to gauge how it will affect everything from the economic recovery trajectory of the coronavirus pandemic to what the Fed will take to respond.
The US Department of Labor said on Tuesday that US consumer prices rose the most in 13 years in June, continuing the situation of higher inflation. This has been causing Wall Street concerns that the Fed may consider withdrawing its low interest rate policy and reducing its interest rate. The bond purchase time was earlier than expected.
Most of the increase in the prices of used cars and other commodities is mainly related to the surge in demand and insufficient supply. But Jamie Cox, managing partner of Harris Financial Group, said that as suppliers continue to increase their operations, the prices of many commodities such as wood and other raw materials are either falling or will fall.
“This is a problem, it appears in various places, but it will not exist forever,” Cox said.
Large companies announced the latest round of corporate earnings, and investors are paying close attention to how companies perform during the recovery and how they view developments for the rest of the year.
Although Goldman Sachs announced the second-best quarterly profit in the investment bank’s history, it still fell by 1.2%. JPMorgan Chase (JPMorgan Chase) shares fell 1.5% after previous reports to investors were mixed and profits were solid, but revenues fell due to lower interest rates in the past three months.
“Financial stocks have received a real tailwind from rising interest rates,” McKnight said. “We have set a price for it. Now it is almost a’show me’ story. Can you really prove that once we return to a more normalized environment, you can achieve revenue at a higher rate?”
Conagra Brands fell 5.4%, the largest drop in the S&P 500 after the owners of Chef Boyardee and other packaged food brands provided investors with weak financial forecasts on the grounds of inflationary pressures. Fastenal, a manufacturer of industrial and construction fasteners, also stated that it expects greater inflationary pressures on product and transportation costs. The stock fell 1.6%.
Bond yields reversed from early trading, rising to 1.42% from 1.36% late Monday. Overall, yields have been declining for several months after a sharp spike earlier this year.
The calmer bond market shows to a certain extent that people are more confident that the rise in inflation may be temporary and mainly related to economic recovery.
“This statement is very solid, and the bond market is not worried that the Fed will cut or raise interest rates,” Cox said.
Steady earnings have indeed helped some companies profit. PepsiCo rose 2.3%, exceeding Wall Street’s second-quarter profit and revenue expectations.
Boeing shares fell 4.2% after the company announced that it would cut production of its large 787 passenger aircraft due to new structural defects in some of the aircraft that have been manufactured but not delivered to airline customers.