(Bloomberg) — Stocks fell in a choppy trading session as investors awaited the start of the earnings season, while weighing the risk of inflation as the Federal Reserve gets ready to reduce its pandemic-era stimulus.
Traders have been concerned that price pressures and supply-chain snarls will sap corporate profits and growth. Fed Bank of Atlanta President Raphael Bostic said this year’s inflation surge is lasting longer than policy makers expected, so it’s not appropriate to refer to such increase as transitory. Vice Chair Richard Clarida noted that the conditions required to begin tapering the bond-buying program have “all but been met.”
The next key test of market confidence will be the start of the earnings season Wednesday. Quarterly guidance, which improved in the runup to the past four reporting periods, is now deteriorating. Analysts project profits at S&P 500 firms to climb 28% to $49 a share, according to data compiled by Bloomberg Intelligence. That’s down from an eye-popping clip of 94% in the previous quarter.
“Earnings season is going to give us a really good clue of where we’re going on some of these supply issues,” Alicia Levine, head of equities and capital market advisory at BNY Mellon Wealth Management, told Bloomberg TV. “The two sectors we worry about are the industrials and retail, because that’s where the companies are not able to pass along price as easily.”
The S&P 500 erased gains. West Texas Intermediate held above $80 a barrel on speculation that a global energy crunch will continue to boost demand. Treasury 10-year yields dropped, while the dollar was little changed.
The International Monetary Fund warned of the risk of sudden and steep declines in global equity prices and home values as global central banks withdraw the support they’ve provided during the pandemic.
For Karen Karniol-Tambour, co-chief investment officer for sustainability at Bridgewater Associates, most portfolios are insufficiently hedged for inflation.
One of the easiest things investors can do is to “switch up their nominal bond holdings to inflation-linked bonds,” told Bloomberg TV. “It’s very simple. You’re literally going to get paid, whatever CPI is.”
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Here are a few events to watch this week:
- U.S. FOMC minutes and CPI Wednesday
- China PPI, CPI Thursday
- U.S. initial jobless claims, PPI Thursday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
- The S&P 500 fell 0.2% as of 3:03 p.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 0.2%
- The MSCI World index fell 0.3%
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.1530
- The British pound was unchanged at $1.3595
- The Japanese yen fell 0.3% to 113.66 per dollar
- The yield on 10-year Treasuries declined three basis points to 1.58%
- Germany’s 10-year yield advanced three basis points to -0.09%
- Britain’s 10-year yield declined four basis points to 1.15%
- West Texas Intermediate crude was little changed
- Gold futures rose 0.2% to $1,759.80 an ounce
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