The Dow Jones Industrial Average declined on Thursday after it retook its record high in the prior session amid solid corporate earnings.
The Dow fell 135 points, or 0.3%. The S&P 500 was flat and the Nasdaq Composite rose 0.4%.
But the Dow’s losses were slight and the S&P 500 hugged the flatline, supported by gains in Tesla following strong earnings from the electric vehicle maker. The S&P 500 sits just 0.2% away from its August high, mounting a comeback this month as booming profit reports trumped worries about inflation and a potential end to Federal Reserve bond buying.
Jim Paulsen of the Leuthold Group noted that correlation between the inflation rate and profit margins has been positive for the past 20 years.
“Investors are understandably concerned about reports that inflation pressures are eroding profit margins and what that may mean for the stock market,” he said in a note Thursday. However, “elevated inflation appears to bolster S&P 500 EPS on the whole.”
Corporate America has so far had a solid performance in the third quarter, even as inflation proves to be persistent. Of the 101 S&P 500 companies that have reported through Wednesday, 84% topped analysts’ earnings estimates according to Refinitiv.
Tesla shares gained 3% after the electric-car maker posted record earnings and revenue in the third quarter that beat expectations.
American Airlines added 1.6% after it posted a profit due to federal aid for the third quarter.
IBM shares lost more than 8% following a revenue miss in the third quarter. Its top two business segments — global services and the Cloud & Cognitive Software business — fell short of estimates. Meanwhile, HP jumped 7% on strong earnings and raised guidance for 2022.
Investors have been monitoring the third-quarter earnings season to assess profit growth as well as signs of cost pressures and supply-chain disruptions for the rest of the year.
“There are no signs of widespread erosions of margins at the moment. Perhaps there is so much money sloshing about that for now prices are broadly being passed on,” Jim Reid, head of thematic research at Deutsche Bank, said in a note.
They’re also keeping a close eye on unemployment data, as the Federal Reserve has indicated it will start to normalize its monetary policy as it nears its economic goals. Jobless claims fell to a new pandemic low of 290,000 last week, the Labor Department reported Thursday. That’s down from the previous week by 6,000 and lower than the 300,000 estimated by economists surveyed by Dow Jones.
Shares of WeWork jumped 11% in its their trading debut on Thursday. The office startup went public through a special purpose acquisition company more than two years after its failed IPO.
Loading chart…
On Wednesday the Dow jumped about 150 points to hit an intraday record, surpassing its peak from mid-August, and fell just short of its closing record. The S&P 500 climbed 0.4% for its sixth straight positive day and sits just 0.2% below its all-time high. The tech-heavy Nasdaq Composite closed Wednesday’s session slightly lower, however.
