US stocks can’t hold early gain and start falling again
Banks and energy companies led a large decline in stocks on Wall Street on Tuesday, giving the Standard & Poor’s 500 Index its sixth loss in the last seven trading days.
The S&P 500 fell 0.6% after an early gain faded mid-afternoon. The benchmark index’s 11 sectors all finished in the red, with banks, energy stocks, and industrial and communications companies among the index’s biggest drag. The sale more than made up for the modest gain of the S&P 500 from the previous day.
The market had started higher after the latest inflation data was better than economists expected, but reversed within the first hour of trading, suggesting the report did not allay concerns of investors when it comes to inflation. On Friday, the government announced that US wholesale prices rose sharply in August.
“There are still inflationary pressures even if they [consumer prices] was below expectations, ”said Kristina Hooper, chief global markets strategist at Invesco. “That doesn’t mean it’s over.”
The S&P 500 lost 25.68 points to 4,443.05. The Dow Jones Industrial Average lost 292.06 points, or 0.8%, to 34,577.57. The Nasdaq composite lost 67.82 points, or 0.5%, to 15,037.76.
Small businesses have fared less well than the market at large. The Russell 2000 Index slipped 30.80 points, or 1.4%, to 2,209.98.
Consumer prices in the United States rose 0.3% below expectations last month, the smallest increase in seven months and an encouraging sign that inflationary pressures may subside. Still, the report follows an 8.3% annual increase in wholesale prices last month from August 2020, the largest year-over-year gain since the Labor Department began calculate the number over 12 months in 2010.
This wholesale-level pricing report was worse than expected, signaling problems for businesses facing higher costs, Hooper said. These costs could be passed on to consumers, but businesses unable to do so could see their future revenues impacted.
Inflation has been a major concern for investors, who are trying to assess how it will affect both the economic recovery and the Federal Reserve’s policy of keeping interest rates low. The central bank said higher costs for raw materials and consumer goods are likely to remain temporary during the economic recovery, but analysts fear the higher prices will persist and hurt business results while cutting spending.
Bond yields eased after the Labor Department report. The 10-year Treasury yield fell to 1.29% from 1.32% on Monday night. It had risen overnight to around 1.34% shortly before the report was released.
Falling bond yields have weighed on banks, which rely on higher yields to charge more lucrative interest on loans. Bank of America fell 2.7% and JPMorgan fell 1.7%.
Wider concerns about inflation and rising prices have contributed to choppy trading, along with lingering concerns about how the more contagious Delta variant of the coronavirus will affect an economy that still finds its place.
“This environment is likely to continue,” Hooper said. “It may seem uncomfortable because we’ve had such a strong market for so long.”
Nonetheless, she expects stocks to continue rising after Wall Street gets over much of the uncertainty about the Fed and the economic recovery, “but it could be a very bumpy road by then.”
Investors will get more information on the economy later this week. The Commerce Department will release retail sales for August on Thursday, giving another snapshot of consumer spending. The University of Michigan will release its consumer confidence survey on Friday.
Elsewhere in the market, several companies have made great strides on a news mix.
Dietary supplement company Herbalife fell 21.1% after slashing its profit and revenue forecast. Wynn Resorts slipped 10.9% for the biggest drop in the S&P 500, fearing its Macau casinos could come under tighter scrutiny as China tries to tighten regulations across a wide range of sectors. Casino operator Las Vegas Sands also fell, closing down 9.8%.
Cable operator Comcast fell 7.3% after the company warned of a slowdown in the number of new cable customers.