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Market Snapshot: Dow flips positive as stocks edge higher despite while Treasury yields slip

U.S. stocks were modestly higher Wednesday afternoon while Treasury yields slipped, weighing on banks stocks, despite data showing high September inflation.

Investors also were awaiting minutes from the Federal Reserve due at 2 p.m. ET

How are stock indexes trading?
  • The Dow Jones Industrial Average
    DJIA,
    +0.01%

    rose 7 points, or less than 0.1%, at 34,387.
  • The S&P 500
    SPX,
    +0.30%

    rose 13 points, or 0.3%, at around 4,363.
  • The Nasdaq Composite Index
    COMP,
    +0.65%

    climbed 96 points, or 0.7%, to about 14,562.

On Tuesday, the Dow fell 118 points, or 0.34%, to 34378, the S&P 500
SPX,
+0.30%

declined 11 points, or 0.24%, to 4351, and the Nasdaq Composite dropped 20 points, or 0.14%, to 14466.

What’s driving the market?

Stocks were modestly higher in afternoon trade, with declining Treasury yields benefiting shares of information technology companies but pressuring those of banks that benefit when yields are higher.

The decline in Treasury yields, with the 10-year Treasury note
TMUBMUSD10Y,
1.550%

at 1.55%, comes as investors were parsing third-quarter U.S. corporate earnings, as concerns about supply-chain problems and labor shortages threaten to dent corporate profits.

“This is the start of a pivotal time for the next couple of weeks, as we start to get a look into what corporations have experienced and what they are anticipating they will experience over the next six months,” Wayne Wicker, chief investment officer at MissionSquare Retirement, said in a phone interview.

“That’s why you see people waffling right now. You have mixed messages on whether the economy has seen peak earnings and if inflation will eat away at margins and earnings decline,” he said.

“Stock selection is going to be a more important ingredient in the fourth quarter, because not everything is going to go straight up.”

Wall Street has been weighing a closely watched reading on inflation that came in hotter than expected.

Data showed that the U.S. consumer-price index rose 0.4% in September after climbing 0.3% in August, the Labor Department said on Wednesday. In the 12 months through September, the CPI increased 5.4% after advancing 5.3% year-over-year in August.

Excluding the volatile food and energy components, the CPI climbed 0.2% after edging up 0.1% in August, the smallest gain in six months. The so-called core CPI rose 4.0% on a year-on-year basis after increasing 4.0% in August.

Higher prices for food, gasoline and rent drove most of the advance. Economists polled by The Wall Street Journal had forecast a 03% increase in the CPI.

“Wednesday’s still elevated Consumer Price Index marks about 6-months worth of hot inflation data, suggesting that inflation is not as transitory as many investors previously expected,” wrote Nancy Davis, founder of Quadratic Capital Management, in emailed comments on Wednesday.

Corporations have been increasingly mentioning the impact of pricing pressures on earnings updates and investors have been eagerly listening for guidance from C-suite executives on the outlook for inflation.

JPMorgan Chase
JPM,
-2.66%

results were better than Wall Street forecasts on earnings per share as it released another $2.1 billion of loan loss reserves. Its shares, however, were down 2.7%.

On the flip side, if other major banks release loan loss reserves, that’s a bullish sign about the health of the U.S. economy, Wicker said.

“I think the pattern has been signaling the coast is pretty clear,” he said. “We really didn’t experience the kind of loan losses that a year-and-a-half ago we had to prepare for.”

Analysts expect S&P 500 index earnings to rise 27.6% annually, a pace markedly slower than a 52.8% gain in the first quarter and 92.4% in the second quarter, which both benefited from favorable comparisons with the start of the COVID-19 pandemic last year. Bank of America has warned that guidance from companies could be ugly amid a “make or break quarter.”

Read: Will bank stocks’ wild rally continue? Here are the numbers to watch in this week’s earnings

Opinion: Beating the market would still be tough even if you knew the S&P 500’s earnings before everyone else

Later on Wednesday, investors will get the latest Federal Open Market Committee meeting minutes. That could “reiterate the Fed’s willingness to start tapering the bond purchases soon and could give a further insight regarding the need and the possibility of seeing the rate normalization happen before 2023,” said Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients.

Davis said that Wednesday’s inflation data is unlikely to change the Federal Reserve’s view on tapering, with expectations that the central bank will announce plans to reduce its monthly purchases in November and end buys by the middle of 2022 as it gears up to eventually normalize interest rates.

“The Fed is already expected to announce its tapering plans and the central bank likely wants to preserve optionality with their hiking cycle, Quadratic’s Davis said.

What companies are in focus?
How are other assets trading?
  • The ICE U.S. Dollar Index
    DXY,
    -0.43%
    ,
    a measure of the currency against a basket of six major rivals, fell 0.5%.
  • U.S. oil futures lost steam, with the benchmark
    CL00,
    -0.10%

    down 0.2% at $80.42 a barrel. Gold futures
    GC00,
    +1.93%

    rose 1.9% to $1,793.10 an ounce, but were off the intraday highs.
  • The Stoxx Europe 600
    SXXP,
    +0.70%

    closed 0.7% higher, while London’s FTSE 100
    UKX,
    +0.16%

    gained 0.2%.
  • The Shanghai Composite
    SHCOMP,
    +0.42%

    rose 0.4%, while Japan’s Nikkei 225
    NIK,
    -0.32%

    lost 0.3%.

Barbara Kollmeyer contributed reporting

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