Stock Market Today: Dow Dips as Inflation Rises, Earnings Season Starts - Barron's

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Investors will be able to scrutinize discussions by Federal Reserve officials such as Chair Jerome Powell from the September FOMC meeting.

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The stock market was mixed on Wednesday, as earnings season got under way and inflation data came in higher than expectations.

By midafternoon, the Dow Jones Industrial Average was down 84 points, or 0.3%, while the S&P 500 was little changed and the Nasdaq Composite was up 0.4%.

Consumer prices rose 0.4% in September from August, higher than the expected 0.3% rise. Prices increased 5.4% from a year ago. The core consumer-price index rose 0.2% month-over-month, below the consensus forecast of 0.3%. The year-over-year increase was 4%. 

Inflation may run at a faster clip than this report would suggest. Reopening-sensitive prices were down, with airfares falling more than 6%. That’s likely bound to reverse. Meanwhile, rents rose about 0.4%. 

“Details of the solid increase in September core CPI suggest even more strength in underlying inflation than the overall increase would suggest,” wrote Andrew Hollenhorst, Citigroup economist.

That could mean the Federal Reserve will raise short-term interest rates sooner than currently expected.

“A growing persistence of strong underlying inflation should keep the Fed maintaining the option to hike rates in the second half of next year,” said Hollenhorst.

The bond market signaled as much. The 10-year Treasury yield slipped to 1.56% after the result. The 2-year yield popped to 0.36% from 0.35% just before the data. This shows markets see a slightly higher chance that the Fed will hike short-term rates soon to stave off inflation, which could restrain economic growth, beyond the near-term.

JPMorgan Chase & Co. (ticker: JPM) kicked off earnings season with encouraging news. The stock was initially up, before dropping 2.6% after the company reported a profit of $4.74 a share, beating estimates of $3 a share, on revenue of $30.4 billion, above expectations for 29.8 billion. The bank’s CEO, Jamie Dimon, said that the firm released $2.1 billion of cash it had set aside for poor credits and that the economic outlook is improving.

That may be true, but investors also want to know that inflation is in check, which makes the inflation result even more important than any individual earnings report today.

Inflation has come into the spotlight recently amid supply chain constraints and a surge in energy prices. Treasury Secretary Janet Yellen reaffirmed her belief that elevated inflation in the U.S. will prove transitory, even as it may take months for high prices to return to normal, in an interview with CBS Tuesday.

Adding buoyancy to market sentiment in the U.S. was a bill passed by the House of Representatives temporarily increasing the government’s borrowing limit and averting a default on U.S. debt. The bill now goes to President Joe Biden for his signature.

Overseas, the pan-European Stoxx 600 was 0.7% higher. In Asia, Hong Kong’s Hang Seng Index fell 1.4% following mixed trade data out of China.

“While the August trade numbers for China were slightly better than expected, despite disruption at Chinese ports and the various lockdown restrictions that affected a lot of the country at the time, it’s still clear that demand in the Chinese economy has been slowing in recent months,” said Michael Hewson, an analyst at broker CMC Markets.

Here are seven stocks on the move Wednesday:

BlackRock (BLK) stock was gaining 3.5% after the company reported a profit of $10.95 a share, beating estimates of $9.39 a share, on revenue of $5 billion, above expectations for $4.82 billion. Assets under management were $9.46 trillion, below expectations for $9.64 trillion.  

Delta Air Lines (DAL) stock dropped 5.5% after the company reported a profit of 30 cents a share, beating estimates of 15 cents a share, on sales of $9.2 billion, above expectations for $8.5 billion. 

Plug Power (PLUG) stock rose 11.3% after getting upgraded to Overweight from Equal Weight at Morgan Stanley. 

Monster Beverage (MNST) stock fell 3.2% after getting downgraded to Hold from Buy at Jefferies. 

Continental Resources (CLR) dropped 2.2% after getting downgraded to Neutral from Buy at MKM Partners. 

SAP (SAP) rose 3.9% in Frankfurt, after the software company raised its outlook for the third time this year—now expecting revenue in its critical cloud division to grow by 16% to 19% this year. The U.S.-listed shares were 5.1% higher.

Apple (AAPL) fell 1% after a report Tuesday that it faced parts shortages for the iPhone.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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