U.S. stock benchmarks were struggling to remain near record-high territory midday Wednesday, 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 around its lowest level since early March, as investors dismissed inflation concerns, also was buoying yield-sensitive assets like technology stocks.
What are major benchmarks doing?
- The Dow Jones Industrial Average DJIA, -0.12% fell 28 points, or 0.1%, to 34,569.
- The S&P 500 index SPX, +0.12% was up 2 points, or less than 0.1%, at 4,228, 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 COMP, +0.40% rose 9 points, or less than 0.1%, to around 13,993, but was well off its intraday peak at 14,003.50
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’s driving the market?
Equities remain stuck in a trading range, with the S&P 500 index and Dow hovering near all-time highs, amid a marketwide vigil centered on the prospects for inflation.
A May reading of the U.S. consumer-price index due on Thursday morning is expected to be the main event of the week. A hotter-than-expected April CPI reading, which showed prices rose 4.2% year-over-year, briefly rattled markets last month.
Some economists, however, say that an expected upswing in inflation shouldn’t deflate the bullish thesis for equities.
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.
The decline in U.S. Treasury yields to their lowest levels since March or February in benchmark government debt, implies that investors are shaking off inflation fears for now.
“We believe the pick-up ( in inflation) will ultimately prove transitory and will not trigger premature policy tightening,” the Oxford analyst said.
However, the CPI data are expected to provide an important test for that conviction.
Prices of goods leaving Chinese factories in May rose at their highest pace in nearly 13 years, boosted by a surge in global commodity prices. China’s producer-price index jumped 9.0% from a year ago in May, accelerating from April’s 6.8% increase, the country’s National Bureau of Statistics said Wednesday.
Against the backdrop of swirling inflation jitters, Grosvenor advised that relative inflation hedges tend to perform well in the current environment, including commodities and financials.
“Their valuations remain cheap compared to history and have
lagged versus the rise in inflation breakevens,” the researcher wrote.
Although the action in stocks overall has been comparatively subdued, trading among meme stocks, those powered by social-media mentions, have been seismic in names including AMC Entertainment Holdings AMC, -9.52%, GameStop Corp. GME, +4.41%, Best Buy BBY, -1.81%, and a number of new entrants that are being swept up in that individual investor-inspired trend.
Meanwhile, 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 is still aiming to reach a deal on the issue with a different group that includes Republican senators.
Which companies are in focus?
- Target Corp. TGT, -0.87% said Wednesday it wold raise its quarterly dividend by 32.4%, to 90 cents a share from 68 cents. Shares of the discount retailer were down less than 0.1%.
- Marqeta Inc. priced its initial public offering at $27 a share late Tuesday, well above its expected range. Marqeta shares are scheduled to begin trading Wednesday on the Nasdaq under the ticker “MQ.”
- Shares of Clover Health Investments Corp. CLOV, -6.75% were up more than 18% Wednesday, after an 85% pop on Tuesday as it joined the ranks of meme stocks at the center of a speculative frenzy by individual investors.
- Shares of United Parcel Service Inc. UPS, -4.71% were off 1.2% after the package delivery giant laid out financial targets for 2023, and provided long-term ESG targets.
- Campbell Soup Co. CPB, -5.08% shares fell 6.6% after the food company on Wednesday reported earnings and revenue that came in below Wall Street estimates and cut its fiscal 2021 outlook.
How are other assets faring?
- The yield on the 10-year Treasury note TMUBMUSD10Y was trading at 1.498%, and has been trading around its lowest level since early March. 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 virtually unchanged.
- Oil futures CL00 retreated, with West Texas Intermediate crude for July delivery off 39 cents, or 0.5%, at $69.67 a barrel. Gold futures GC00 edged up 20 cents, or less than 0.1%, lower at $1,894.20 an ounce.
- European equities closed slightly higher, with the pan-Continental Stoxx Europe 600 SXXP finishing up less than 0.1%. London’s FTSE 100 UKX ended down 0.2%.
- In Asia, the Shanghai Composite SHCOMP closed 0.3% higher, while Hong Kong’s Hang Seng Index HSI ended 0.1% lower and Japan’s Nikkei 225 NIK fell 0.4%.