Wall Street indexes closed lower but off intraday lows on Tuesday, as investors showed little appetite for new investments as they await tomorrow’s U.S. July inflation data, which they hope will give them a picture of whether the Fed’s aggressive monetary tightening is starting to pay off.
Investor caution was evident from the opening minutes of the session, as the key question after Friday’s strong U.S. jobs data is whether inflationary pressures have taken hold in the U.S. economy, potentially making it harder to meet the the central bank’s target for price stability, despite recent resounding rate hikes.
Hopes that inflation may have peaked and that the Federal Reserve could therefore adopt a less aggressive monetary tightening policy helped stocks rally in recent weeks and the broader S&P 500 climbed nearly 13% above 2022 lows which he recorded in mid-June.
This recovery was also helped by the corporate results of the second quarter, which were not as bad as expected.
However, the sell-off warning issued by former investor-favorite semiconductor company Nvidia and peer Micron, dragging down other companies in the sector as well, gave the “bulls” a chance to think. After all, several analysts warn that the market optimism of late will be further questioned if the consumer prices to be announced tomorrow are higher than expected.
“This temporary lull could clearly reverse tomorrow after the latest US CPI data, so perhaps the next 30 hours will mark the calm before the storm, or perhaps herald the actual start of the tough days of summer,” note the Deutsche Bank analysts.
Economists forecast that the drop in energy prices would help July’s CPI fall, on an annual basis, from a multi-decade high of 9.1 percent to 8.7 percent.
However, data from the productivity front does not leave much room for optimism. In particular, the data released showed that productivity in the US fell in the second quarter of the year at a rate of 4.6% on an annual basis, while in the same period the cost of labor per unit of product jumped by 10.8%, intensifying fears that inflationary pressures continue.
Meanwhile, debate continues over whether the stock market’s latest rally is the start of a more prolonged uptrend or a rally that will come to an inglorious end due to slower economic growth and higher interest rates.
Wells Fargo’s strategists have also warned that forecasts for corporate profitability were too rosy. “We expect slowing revenue and higher costs to squeeze margins in the coming quarters, likely leading to a contraction in earnings over the next 12 months,” they said in a note to clients.
Indicators – statistics
Amidst this sentiment, the US stock market fell, with the Nasdaq leading the decline, with all three indices closing well off the day’s lows.
In particular, on the board, the Dow Jones, although it tried to return to an upward trajectory during the session, did not manage to do better than to close with a slight loss of 58.13 points or 0.18%, at 32,774.41 points.
The broader S&P 500, on the other hand, fell for a fourth straight session and ended today’s session at 4,122.47 points, down 0.42%.
The worst picture, however, as mentioned above, was displayed by the technology Nasdaq, weighing on semiconductor companies, finally ending the day at 12,493.93 units, down 1.19% and completing three consecutive days of losses.
In the index of blue chips, the scales tipped slightly towards the “green”, with 17 stocks out of 30 posting gains and the remaining 13 posting losses. The highest gains were recorded by Travelers (1.84%), Chevron (1.30%) and McDonald’s (1.27%), while the biggest losses were recorded by Salesforce (-3.96%), Nike (-3 .41%) and Intel (-2.43%).
Nvidia also fell sharply by nearly 4%, while Micron closed down -3.7%, with both semiconductor companies warning that they expect weaker demand and forecast lower figures for the current quarter. Warnings added to similar estimates from several more US businesses, which see consumer spending falling as a result of rising interest rates and, above all, continued price increases.
In other stocks, the 30% “plunge” of the vaccine company Novavax stood out, after the company revised its guidance for the whole of the current year.