Stocks gained on Wednesday as investors digested new earnings data and a key inflation report, which showed a faster-than-expected rise in inflation across a broad range of goods. The S&P 500 and Nasdaq each rose for the first time in four sessions, led by a rise in technology stocks.
Third-quarter earnings season also picked up, with notable companies including JPMorgan Chase (JPM) and BlackRock (BLK) posting results before market open. JPMorgan Chase, the largest U.S. bank by assets, posted results that topped estimates on both the top and bottom lines, boosted by a larger-than-expected release of credit reserves and strong sales in the firm's investment banking and equities trading divisions.
Investors have been trimming their outlooks for overall S&P 500 earnings growth for the third quarter, given that rising input prices, higher labor costs and other supply-side headwinds likely weighed on margins and chipped away at profitability.
Recent developments for a plethora of companies across industries have already reflected the impacts of supply chain shortages and shipping challenges. The Wall Street Journal reported that firms from Costco (COST) to Walmart (WMT) have resorted to chartering their own ships to import goods ahead of the holiday season. And Bloomberg reported Tuesday that Apple (AAPL) was set to cut its iPhone production targets for this year by as many as 10 million units due to ongoing chip shortages.
The latest batch of economic data due Wednesday confirmed that these supply and demand mismatches translated to ongoing inflationary pressures at the start of the fall.
In the Labor Department's Consumer Price Index, core prices, excluding food and energy, rose by 4.0% in September over last year, coming down only slightly from June's 30-year high of 4.5%. And a broader measure of consumer prices including all categories rose 5.4% in September compared to last year, coming in at the fastest pace since 2008.
Wall Street analysts are looking for third-quarter earnings growth of about 27% on a year-over-year basis, according to FactSet data. Though this would still be the third-fastest earnings growth rate since 2010, it would be a marked slowdown from the second quarter's nearly 90% pace.
Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, wrote in a note this week that this "will be a make-or-break quarter with all eyes on margins and supply chains.
Other strategists agreed.
"We think investors should fasten their seatbelts because this is going to be one rocky earnings season,” Wall Street Alliance Group’s Aadil Zaman told Yahoo Finance Live on Tuesday. “Supply chain issues are going to be dominating the earnings, and some companies, we are going to see, are going to give us an early Halloween shock.”
However, given that issues around materials shortages, port congestion and labor scarcities have already been well-known among investors, traders should focus more closely on company commentary and outlooks as a signal of future resilience, some pundits noted.
“The message that I’m giving to our investors is focus not necessarily on what the third-quarter print is, but more importantly focus on what companies are saying about visibility going forward,” John Lynch, chief investment officer for Comerica Wealth Management, told Yahoo Finance Live. “And we think that we’re going to see good visibility from some of the value and cyclical players going forward.”
Here were the main moves in markets as of 4:04 p.m. ET:
S&P 500 (^GSPC): +13.15 (+0.30%) to 4,363.80
Dow (^DJI): -0.53 (-0.00%) to 34,377.81
Nasdaq (^IXIC): +105.71 (+0.73%) to 14,571.64
Crude (CL=F): -$0.12 (-0.15%) to $80.52 a barrel
Gold (GC=F): +$33.80 (+1.92%) to $1,793.10 per ounce
10-year Treasury (^TNX): -3.1 bps to yield 1.5490%
The Federal Open Market Committee released the minutes from its September meeting on Wednesday, which went into further detail around policymakers' thinking about the timing of asset-purchase tapering and progress in the economic recovery.
The meeting minutes showed that policymakers saw tapering beginning in mid-November or mid-December this year, with this process likely continuing through the middle of next year. The minutes. also detailed the still-divergent views among policymakers over whether the threshold of "substantial further progress" had yet been met in the labor market's recovery.
"A number of participants assessed that the standard of substantial further progress toward the goal of maximum employment had not yet been attained but that, if the economy proceeded roughly as they anticipated, it may soon be reached," the minutes said. However, other participants said they believed the threshold had been met.
"Some of these participants also suggested that labor supply constraints were the main impediments to further improvement in labor market conditions rather than lack of demand," the minutes said "They noted that adding monetary policy accommodation at this time would not address such constraints or that the costs of continuing asset purchases might be beginning to exceed their benefits."
The Bureau of Labor Statistics' latest Consumer Price Index reflected a faster-than-expected rise in prices across a range of consumer goods. And the details of the report showed some of the categories that saw gains were outside the scope of those associated with the reopening, suggesting these inflationary pressures may last longer than many policymakers have so far acknowledged, according to at least one economist.
"The top takeaway is, inflation is still running hot. It's well above the Fed's target," Matthew Luzzetti, Deutsche Bank chief U.S. economist, told Yahoo Finance Live Wednesday morning. "I think within the details, the most important point was, rental inflation was the highest we've seen since 2001."
"It's been a difficult tug of war here between nominal wages going higher … but inflation for the most part eating away at that and stripping away a lot of those nominal wage gains that we've seen," Luzzetti said. "If you focus on wage gains minus inflation, they've been negative for a period of time here, given that we've seen inflation picking up, particularly on a headline basis, and energy prices driving a lot of that."
"I think from the Fed's perspective, that is one reason why they've said that they don't think this is going to be as persistent, because they would want to see wages running above productivity growth and real wages running above productivity growth, and we haven't seen that as of yet," he added. "But I think today's data at least on the rental front does tell you that the rise in inflation is probably going to be a bit more persistent than what the Fed had anticipated previously."
Here's where markets were trading just after the opening bell Wednesday morning:
S&P 500 (^GSPC): +12.53 points (+0.29%) to 4,363.18
Dow (^DJI): +28.5 points (+0.08%) to 34,406.84
Nasdaq (^IXIC): +84.58 points (+0.58%) to 14,545.13
Crude (CL=F): -$0.66 (-0.82%) to $79.98 a barrel
Gold (GC=F): +$7.40 (+0.42%) to $1,766.70 per ounce
10-year Treasury (^TNX): -2.9 bps to yield 1.551%
Consumer prices posted a faster-than-expected rise in September compared to August and the same month last year, with a broad jump in food, housing and energy prices contributing to the gain.
The Bureau of Labor Statistics' Consumer Price Index (CPI) increased at a 0.4% monthly rate in September, accelerating from August's 0.3% pace. On a year-over-year basis, the CPI jumped 5.4%, also speeding compared to the prior month's 5.3% increase and coming in at the fastest pace since 2008. Consensus economists were looking for the CPI to increase by 0.3% and 5.3% on a month-over-month and annual basis, respectively.
Price increases across food and shelter contributed to more than half of the monthly increase in CPI, the BLS said in its report. Grocery store food prices increased for an array of products including meats, nonalcoholic beverages, fruits, vegetables and bakery goods. The energy index also increased 1.3% in a fourth straight monthly gain, led in turn by a 3.9% monthly surge in fuel oil prices.
Excluding the more volatile food and energy categories, the CPI still rose 0.2% on a month-over-month basis, coming in a tick faster than August's 0.1% increase. Over last year, the CPI excluding food and energy prices increased by 4.0%, matching August's rate. Though this metric has slowed from June's 30-year high of 4.5%, it remains elevated on a historical basis.
Here's where markets were trading Wednesday morning:
S&P 500 futures (ES=F): +7 points (+0.16%), to 4,347.75
Dow futures (YM=F): +42 points (+0.12%), to 34,302.00
Nasdaq futures (NQ=F): +52.75 points (+0.36%) to 14,706.66
Crude (CL=F): -$0.36 (-0.45%) to $80.28 a barrel
Gold (GC=F): +$12.90 (+0.73%) to $1,772.20 per ounce
10-year Treasury (^TNX): -1 bp to yield 1.57%
JPMorgan Chase handily exceeded Wall Street's expectations for third-quarter earnings and revenues, with the results boosted a leap in investment banking activity.
Investment banking revenue surged 45% over last year to $3 billion, with both advisory and equity underwriting fees increasing. Elsewhere in the firm, equity sales and trading revenue grew 30% to reach a better-than-expected $2.60 billion. This growth helped offset a 20% drop in fixed-income sales and trading revenue, though this still came about in-line with estimates at $3.7 billion.
JPMorgan's quarterly earnings also received a positive impact from the release of $2.1 billion in net credit reserves, which had been set aside earlier on during the pandemic to protect against potential loan defaults and nonpayments.
In a statement, JPMorgan Chase CEO Jamie Dimon said the reserve release came "as the economic outlook continues to improve and our scenarios have improved accordingly. As we have said before, however, we do not consider these scenario-driven releases core or recurring profits."
Here's where markets were trading Tuesday evening:
S&P 500 futures (ES=F): -11 points (-0.25%), to 4,329.75
Dow futures (YM=F): -51 points (-0.15%), to 34,209.00
Nasdaq futures (NQ=F): -54.5 points (-0.37%) to 14,595.75
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter
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Inflation is high. You might as well profit from it.
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