U.S. stock benchmarks finished lower, losing steam in the session’s final half-hour, ahead of an eagerly awaited inflation report due Thursday, which could set the tone for the broader financial markets.
A decline of the benchmark 10-year Treasury yield, to its lowest level since March 3, led investors into yield-sensitive assets, including technology stocks, but away from the banking sector.
How did major benchmarks perform?
The Dow Jones Industrial Average
fell 152.68 points, or 0.4%, to end at 34,447.14.
The S&P 500 index
fell 7.71 points, or 0.2%, finishing at 4,219.55, pulling back after touching an intraday high at 4,237.09, surpassing its May 7 record closing high at 4,232.60.
The tech-heavy Nasdaq Composite Index
shed 13.16 points, or 0.1%, to close at 13,911, turning negative after touching an intraday peak at 14,003.50, while booking its first loss in four session.
On Tuesday, stocks barely budged. The Dow fell 30.42 points, or 0.1%, to close at 34,599.82, while the S&P 500 rose less than a full point and the Nasdaq Composite edged up 0.3%.
What drove the market?
Equities remain stuck in a trading range, with the S&P 500 index hovering near an all-time high and the Dow booking a third day in a row of losses, during a marketwide vigil centered on the prospects for inflation.
“I think the market is trying to digest what’s going on in rates,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers in an interview with MarketWatch, while pointing to the recent fall in the 10-year Treasury note yield to about 1.49%, despite expectations that it might head to around 2% by year’s end.
The falling 10-year yield occurred despite April’s surging consumer-price index, a popular inflation metric, which put already jittery investors about inflation on high alert for a potentially out-of-control climb in prices.
Janasiewicz said falling benchmark yields point to investors “fearing the fear of inflation, as opposed to actual inflation.” In the same vein, he thinks higher commodity prices, including oil near $70 a barrel, have been part of that same narrative. “But to us, the backdrop still is supportive,” he said. “The cyclical trade still works.”
A May reading of the U.S. consumer-price index due on Thursday morning is expected to be the main event of the week. The headline consumer-price index is expected to rise by an outsized 0.5% in May and 4.8% for the year. A hotter-than-expected April CPI reading, which showed prices rose 4.2% year-over-year, briefly rattled markets last month.
The decline in U.S. Treasury yields to their lowest levels since March or February on Wednesday, implies that investors are shaking off inflation fears for now.
Recent upside inflation surprises have not altered our positive view on global equities, wrote Daniel Grosvenor, director of equity strategy at Oxford Economics in a Wednesday report. “We believe the pick-up (in inflation) will ultimately prove transitory and will not trigger premature policy tightening,” the Oxford analyst said.
While the overall action in stocks has been comparatively subdued this week, trading among meme stocks, those powered by social-media mentions, have been seismic, including in shares of AMC Entertainment Holdings
and a number of new entrants swept up in the trend inspired by individual investors. GameStop reports earnings Wednesday after the bell.
In Washington, talks between the White House and a group of Republican senators led by West Virginia’s Shelley Moore Capito on an infrastructure package broke down Tuesday, though President Joe Biden still aims to reach a deal on the issue with a different group that includes Republican senators.
Which companies were in focus?
Shares of Geo Group Inc.
surged 38.4% Wednesday, as the struggling private-prison operator gained popularity with meme stock enthusiast, Bloomberg reported.
said Wednesday it would raise its quarterly dividend by 32.4%, to 90 cents a share from 68 cents. It also reported traffic growth of 4.8% over the past 13 quarters. Shares of the discount retailer fell 1.4%.
priced its initial public offering at $27 a share late Tuesday, well above its expected range. Marqeta shares closed up 13% Wednesday on the Nasdaq.
Shares of Clover Health Investments Corp.
plunged 23.6% Wednesday, after an 85% pop on Tuesday as it also joined the ranks of meme stocks at the center of a speculative frenzy by individual investors.
Shares of United Parcel Service Inc.
fell 4.2% after the package delivery giant laid out financial targets for 2023, and its long-term ESG targets.
Campbell Soup Co.
shares fell 6.5% after the food company on Wednesday reported earnings and revenue that came in below Wall Street estimates and cut its fiscal 2021 outlook.
How did other assets fare?
- The yield on the 10-year Treasury note TMUBMUSD10Y was 3.8 basis points lower at 1.489%, its lowest level since March 3. Yields and bond prices move in opposite directions.
- The ICE U.S. Dollar Index DXY, -0.10%, a measure of the currency against a basket of six major rivals, was 0.1% higher.
- Oil futures CL00 retreated, with West Texas Intermediate crude for July delivery off 9 cents, or 0.1%, settling at $69.96 a barrel. Gold futures GC00 edged higher by $1.10, or about 0.1%, settling at $1,895.50 an ounce.
- European equities closed slightly higher, with the pan-Continental Stoxx Europe 600 SXXP up less than 0.1%. London’s FTSE 100 UKX ended down 0.2%.
- In Asia, the Shanghai Composite SHCOMP closed 0.3% higher, the Hong Kong’s Hang Seng Index HSI ended 0.1% lower and Japan’s Nikkei 225 NIK fell 0.4%.
William Watts contributed reporting