U.S. stocks on Wednesday were headed for a third straight loss as fears of inflation weighed on Wall Street sentiment. Investors will watch for minutes from the Federal Reserve’s most recent policy meeting for clues on how the central bank will address evidence of pricing pressures building in the economy, which it has so far described as transitory.
Ahead of that, investors continue to parse the health of the retail sector as Target Corp. and Lowe’s Cos deliver earnings.
How are stock benchmarks performing?
- The Dow Jones Industrial Average DJIA,
-1.26% fell about 400 points to reach 33,688, a decline of 1.1%, which wiped out the blue-chip index’s gains for May. - The S&P 500 index SPX,
-1.11% slumped 50 points, or 1.2%, to trade at 4,079. - The Nasdaq Composite Index COMP,
-0.83% retreated 173 points to about 13,132, a drop of 1.3%.
On Tuesday, the Dow fell by 267.13 points, or 0.8%, to close at 34,060.66, the S&P 500 finished with a loss of 35.46 points, or 0.9%, at 4,127.83, and the Nasdaq Composite slipped 75.41 points, or 0.6%, to finish at 13,303.64.
What’s driving the market?
A pullback for stocks was accelerating as investors awaited an account of the Fed’s most recent policy meeting in April.
The minutes of the meeting aren’t likely to provide substantial insight into the central bank’s policy that hasn’t already been gleaned from statements from members of the rate-setting Federal Open Market Committee in recent days, but investors’ fixation with inflation has invoked greater significance to the report, which will be released at 2 p.m. Eastern Time.
Back in late April, the FOMC voted unanimously to maintain accommodative policies, aimed at holding down borrowing costs between 0% and 0.25% while maintaining its pace of monthly asset purchases. Fed Chairman Jerome Powell described the economic recovery from the COVID pandemic as uneven and incomplete.
But market participants are struggling with the concept of “transitory” inflation pressures, as described by a number of Fed officials.
“In recent speeches, Fed officials have indicated that they view the rise in inflation as temporary, and that the downside surprise in payrolls was probably due to a temporary labor supply shortage, likely related to the pandemic and enhanced unemployment benefits,” wrote analysts at UniCredit.
“Our view remains that tapering will be discussed around August/September this year, with a formal announcement in December that tapering will commence in 1Q22,” the analysts wrote.
“The Fed is putting out the message that inflation is transitory and that there are still 8 million unemployed,” wrote Sebastien Galy, strategist at Nordea Asset Management.
“The problem is that price expectations in various markets from wood to labor and company pricing strategies are running ahead of economic reality. The litmus test will be in the data and the front pages of newspapers as companies announce salary increases,” the analyst wrote.
Some market participants and analysts fear that after years of not achieving the Federal Reserve’s 2% annual inflation target, one that the Fed has said it is now willing to overshoot to achieve, that a double-digit rise in inflation a la the 1960s may be brewing, Bloomberg News reported on Wednesday.
“I would rather see us go back to a Fed that is concerned about pre-empting inflation, rather than a Fed that is concerned about pre-empting fears that it will be concerned about inflation,” said former Treasury Secretary Larry Summers on Tuesday, in a discussion at an Atlanta Fed conference on financial markets.
On the public health front, India recorded a global record of 4,529 deaths from COVID-19 in a single day on Tuesday, according to its official numbers. The previous record was the 4,468 deaths counted in the U.S. in January. Brazil is third in cases with 15.7 million and second in deaths with 439,050.
Which companies are in focus?
- Lowe’s Cos. LOW reported Wednesday fiscal first-quarter profit, sales and same-store sales that rose above expectations, and provided an upbeat outlook. Shares were off nearly 2%.
- Target TGT,
+4.53% reported net income totaled $2.097 billion, or $4.17 per share, up from $284.0 million, or 56 cents per share, last year. Adjusted EPS of $3.69 was 525% higher than last year, reaching an all-time high. Its stock was up 3.6%. - Southwest Airlines Co. LUV shares were down 2.6% after it disclosed Wednesday that April operating revenue and load factor were in line with expectations, and said it continues to see improvement in leisure passenger demand and bookings for May and June travel.
- Purple Innovation Inc. shares PRPL,
-8.39% tumbled over 7% after the mattress and sleep products company priced a secondary offering of 7.3 million shares at $30 each, a discount over its closing price of $32.50 on Tuesday.
How are other assets faring?
- The yield on the 10-year Treasury note TMUBMUSD10Y was up 0.7 basis point at 1.648%. Yields and bond prices move in opposite directions.
- The ICE U.S. Dollar Index DXY, a measure of the U.S. currency against a basket of six major rivals, was up 0.2%, trying to climb off its lowest level since late February.
- West Texas Intermediate crude for June delivery CL.1,
-4.31% CLM21,-4.31% fell $2.05, or 3.1%, to $653.44 a barrel on the New York Mercantile. - June gold futures GCM21,
+0.93% jumped 14.80, or 0.8%, to $1,881 an ounce, extending a climb for the most-active contract, which finished at its highest since Jan. 7 on Tuesday, FactSet data show. - The Stoxx Europe 600 index SXXP, was trading 1.1% lower, while London’s FTSE 100 UKX skidded 1.6%.
- In Asian trade, Japan’s Nikkei 225 NIK,
-1.28% lost 1.3% and the Shanghai Composite SHCOMP,-0.51% edged down 0.5%.
