Stocks Waver After Inflation Data, Major Earnings

2021-10-13 11:50:00
U.S. stocks were mixed in choppy trading Wednesday, with the S&P 500 on pace to snap a three-session losing streak.

The broad U.S. stock index added 0.1%, while the Dow Jones Industrial Average edged down 0.1%. The tech-heavy Nasdaq Composite gained 0.5%.

Traders parsed fresh inflation data and minutes from the Federal Reserve’s September meeting for indications of when the central bank might begin scaling back its support of the economy.

Consumer-price data showed U.S. inflation accelerated slightly in September, rising a seasonally adjusted 0.4% from the previous month and at a 5.4% annual rate as labor shortages and supply-chain snarls kept prices high. Economists had projected a 0.3% increase from August and a 5.3% annual rate.

“I think the Fed might be forced to raise rates quicker than they want to,” said

Carter Henderson,

portfolio manager at Fort Pitt Capital Group. “Inflation, in my eyes, is not transitory.”

The central bank signaled last month that it was prepared to begin reversing its pandemic stimulus programs in November and could raise interest rates next year. Meeting minutes released Wednesday showed Fed officials reviewed plans to possibly end their asset purchases by the middle of 2022.

Stocks have been weighed down in recent days by fears about inflation, stoked by rising energy prices and continued supply bottlenecks. Investors are trying to gauge how inflation will affect central bank support for the economy and whether the higher costs for raw materials and energy will erode profits as third-quarter earnings season kicks off. 

“Equity markets need to incorporate the higher uncertainty on central banks’ approaches and the uncertainties on the earnings side,” said

Antonio Cavarero,

head of investments at Generali Insurance Asset Management. “This doesn’t mean the tide has turned, but some higher caution is probably the way to go for the next few weeks.” 

Several household-name companies reported earnings early Wednesday.

BlackRock

shares rose 3.8% after the money-management company reported revenue and profit that beat analysts’ expectations.

JPMorgan

‘s earnings per share came in above Wall Street’s projections but the bank’s shares fell 2.7%.

Delta Air Lines

shares dropped 5.7% after the company posted a quarterly profit but said it faced pressure from rising fuel prices.

“Have we passed the point of the sweet spot—low costs and explosive demand, to a point where demand is softening and costs are picking up? We do expect to see some signs of that starting to emerge,” said

Sebastian Mackay,

a multiasset fund manager at Invesco. “I do believe we’ll be in a more rocky patch for equities, where they will be moving sideways or possibly down a little bit.” 

The oil-price rally halted following a report that suggested Iran nuclear talks could recommence as soon as this week, prompting some traders to price in a potential higher supply of crude to the market. Global benchmark Brent crude edged down 0.1% to $83.30. 

Tempered demand due to the sharp rise in energy prices may also be contributing to the stabilization, according to Mr. Mackay.

“We are probably entering the stage where prices have moved up so quickly that we are now getting a demand response—people are reining in spending and that starts to balance the market a little bit,” he said.

More stable oil prices will weigh on market participants’ expectations for inflation, at least in the short term, according to

Michael Hewson,

a chief market analyst at CMC Markets. 

The yield on the benchmark 10-year U.S. Treasury note dropped to 1.549% Wednesday, from 1.579% Tuesday.

Overseas, the pan-continental Stoxx Europe 600 rose 0.7%. In Asia, major benchmarks were mixed. The Shanghai Composite Index added 0.4% while Japan’s Nikkei 225 slid 0.3%. Markets in Hong Kong were closed due to a typhoon.

Investors are trying to gauge whether higher costs for raw materials will erode corporate profits.



Photo:

BRENDAN MCDERMID/REUTERS

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Karen Langley at karen.langley@wsj.com 

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