Market Snapshot: U.S. stocks struggle for momentum ahead of inflation report

Market Snapshot: U.S. stocks struggle for momentum ahead of  inflation report

U.S. stocks finished lower on Tuesday as anxieties about looming inflation data and a selloff in semiconductor stocks drove the S&P 500 to its fourth straight losing session.

What happened
  • The Dow Jones Industrial Average
    DJIA,
    -0.18%

    closed 58.13 points, or 0.2%, lower at 32,774.41.

  • The S&P 500
    SPX,
    -0.42%

    fell 17.59 points, or 0.4%, to end at 4,122.47.

  • The Nasdaq Composite
    COMP,
    -1.19%

    shed 150.53 points, or 1.2%, closing at 12,493.93, its third straight day in the red.

On Monday, the Dow eked out a gain of 0.1%, while the S&P 500 and Nasdaq Composite each lost 0.1% after an opening rally fizzled.

What drove markets

Stocks fell as warnings from semiconductor stalwarts Nvidia Corp
NVDA,
-3.97%

and Micron Technology Inc.
MU,
-3.74%

rattled chip stocks even as President Joseph Biden signed the bipartisan Chips and Science Act into law. Meanwhile, anxieties ahead of inflation reports due out Wednesday and Thursday helped to put the market’s recent rally on pause.

“There’s a lot of nervousness around the inflation reports coming out tomorrow and Thursday,” said Paul Nolte,  a portfolio manager at Kingsview Investment Management. “And continued weakness in the chips sector, which has historically been seen as a market-leading sector, is also helping to hold stocks back.”

Hopes that inflation had peaked briefly helped the S&P 500 index bounce more than 13% off its June low, as some investors embraced the theory that slowing inflation could empower the Federal Reserve to pivot toward a less aggressive pace of monetary tightening. But as the index in recent days gave back some gains, the index close up 12.4% from its 12-month low set on June 16, according to Dow Jones Market Data.

The slump has come after many analysts and several senior Fed officials warned that hopes for such a shift might be premature.

See: U.S. consumers likely got some relief from sizzling price increases in July but Fed won’t feel any better

See also: Don’t be fooled by a drop in U.S. headline inflation. Markets will be attuned to another figure on Wednesday.

Looking ahead to the release of the July reading of the consumer-price index, economists expect a dip in energy prices will have helped the pace of consumer-price gains to retreat from a multidecade high. Year-over-year headline CPI increased by 9.1% in June, the highest level in four decades. Economists polled by FactSet expect headline CPI to slow to 8.7%, but a hotter-than-expected reading on either the headline number, or the core number — which strips out volatile food and energy prices — could rattle markets, analysts warned.

“A hotter-than-anticipated CPI report will pressure markets this week. An in-line report could be taken in stride as investors have priced in a 75 basis point move by the Fed in September,” said Lindsey Bell, chief markets and money strategist for Ally.

“Either way, we still have to get through another jobs report, more inflation data, and Jackson Hole before we get to the Fed’s September meeting,” Bell said in emailed comments, referring to the annual central banker retreat in Wyoming later this month. “It could be a volatile several weeks ahead.”

A drop Monday in the New York Fed’s measure of consumer inflation expectations was taken as a positive sign, but strong wage growth data in Friday’s July jobs report and a large rise in unit labor costs in data released Tuesday were a source of unease, analysts said.

Read: Nvidia is hit by another ‘crypto hangover,’ and that isn’t the only problem

See: A surging stock market is on the verge of signaling a ‘huge’ move — but there’s a catch

Meanwhile, investors have been debating whether the latest stock market advance is the start of a more prolonged uptrend or a rally that will fail when faced with slower economic growth and higher interest rates.

Read: Why the S&P 500’s ‘bounce within a bear market’ could fizzle before it hits 4,200

As the second-quarter earnings season comes to a close, Wells Fargo strategists warned that profit projections have been too rosy, potentially removing another support from the market.

“We expect slowing revenue growth and higher costs to squeeze margins in the coming quarters, likely leading to an earnings recession over the next 12 months,” the Wells Fargo analysts said in a note to clients.

Need to Know: The red flag that preceded a halving of global equities in 2000 and 2007 is back, warns Citi

Meanwhile, the “meme-stock” phenomenon returned this week, with Bed Bath & Beyond Inc.
BBBY,
-14.20%

shares soaring 36% Monday with no apparent news driving the move, only to slump 14.2% Tuesday. AMC Entertainment Holdings Inc.
AMC,
-6.30%

and GameStop Corp.
GME,
-7.09%

also jumped Monday, but fell 6.3% and 7.1%, respectively, the next day.

Companies in focus
  • Novavax Inc.
    NVAX,
    -29.64%

    shares slumped 29.6% Tuesday after executives at the vaccine maker late Monday slashed their annual sales guidance in half while wildly missing financial expectations.

  • Shares of Take-Two Interactive Software Inc.
    TTWO,
    -3.78%

    dropped 3.8% after the videogame publisher revised its outlook lower, to not only account for its recent acquisition of Zynga but for shifts in the release dates of some titles.

  • Applebee’s and IHOP restaurant chains parent Dine Brands Global Inc.
    DIN,
    -1.13%

    reported second-quarter profit and revenue that beat Wall Street forecasts, citing “sustained off-premise traffic” and a continued recovery of dining in. Shares retreated 1.1%

  • Hyatt Hotels Corp.
    H,
    2.70%

    on Tuesday reported profit and revenue that topped expectations amid growth in hotel demand. Hyatt shares rose 2.7%.

  • Shares of videogaming software company Unity Software Inc.
    U,
    1.19%

    rose 1.2%, while Applovin Corp.’s stock
    APP,
    -10.29%

    tumbled 10.3%, after Applovin said it submitted an unsolicited bid to buy Unity in an all-stock deal with an enterprise value of $20 billion.

How other assets performed
  • West Texas Intermediate crude for September delivery fell 26 cents, or 0.3%, to close at $90.50 a barrel
    CL.1,
    -0.70%

    CLU22,
    -0.70%

    on the New York Mercantile Exchange.

  • The 10-year Treasury yield
    TMUBMUSD10Y,
    2.779%

     climbed to 2.803% from 2.763% on Monday afternoon.

  • The ICE U.S. Dollar index
    DXY,
    -0.10%
    ,
    a measure of the currency against a basket of six major rivals, fell 0.1%, while gold
    GC00,
    -0.38%

    futures closed at their highest level in six weeks on Tuesday, with the December contract gaining 0.4% to settle at $1,812.30.

  • Bitcoin
    BTCUSD,
    -0.47%

    fell 3.6% to trade near $23,115.

  • Asia markets were mostly softer, with Hong Kong’s Hang Seng
    HSI,
    -1.96%

    down 0.2% and Japan’s Nikkei 225
    NIK,
    -0.65%

    off 0.9%. In Europe, the Stoxx 600
    SXXP,
    -0.01%

    fell 0.7%, while London’s FTSE 100
    UKX,
    -0.00%

    edged up 0.1%.

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