A slide in big tech and higher energy prices weighed on Wall Street sentiment ahead of key inflation data that will help shape up the outlook for the Federal Reserve’s next steps.
(Bloomberg) — A slide in big tech and higher energy prices weighed on Wall Street sentiment ahead of key inflation data that will help shape up the outlook for the Federal Reserve’s next steps.
Stocks pushed lower, with chipmakers leading losses in the S&P 500 and the Nasdaq 100 dropping 1%. Nvidia Corp., which has more than tripled this year amid the artificial-intelligence frenzy, slipped 4%. Megacaps Tesla Inc., Amazon.com Inc. and Meta Platforms Inc. were all down. A 40% surge in European natural gas and an advance in oil to a nine-month high added to concern about further price pressures. Ten-year US yields hovered near 4% before another closely watched bond auction.
“Markets are vulnerable to a period of consolidation,” said Mark Hackett, chief of investment research at Nationwide. “The rate environment is a headwind. Investors are increasingly concerned that the conservative positioning of institutional investors for much of the past year has shifted to aggressively long.”
Hackett also highlighted the seasonally weak August and September period for stocks, while saying that the strength in economic and earnings data “supports higher markets once we emerge from the malaise.”
For now, traders decided to take some chips off the table ahead of the consumer price index. The report is expected to show that inflation increased at a 3.3% annual pace in July, marking the first acceleration since June 2022, according to the median forecast of economists surveyed by Bloomberg. The core measure — which strips out volatile food and energy prices — is expected to ease slightly to 4.7%.
“Risk-on” expectations for CPI have cooled relative to the last couple of reports, according to a survey conducted by 22V Research. Investors aren’t risk-off, but are more ambivalent following a string of good releases. The strong wage data from last Friday’s employment data has likely gotten attention, the firm noted.
Even if inflation overshoots expectations, the Fed will likely feel its policy is restrictive enough as manufacturing struggles and the jobs market shows signs of softening, according to Fawad Razaqzada, a market analyst at City Index and Forex.com. That means a “small beat” wouldn’t matter too much, he noted.
“A goldilocks outlook in the US is what stock market investors on Wall Street have been enjoying this year – until the recent weakness,” Razaqzada added. “They will be looking for signs that the health and sentiment of the consumer remains positive, enough not increase the risks of a further Fed rate increase, and yet not too depressing to raise recession alarm bells. Somewhere in between could support stocks.”
Swap traders assign about a 40% likelihood of another quarter-point Fed rate increase this year, but by the end of next year they price in rate cuts totaling more than 125 basis points.
Elsewhere, the Bank of Russia announced it will halt purchases of foreign currency on the domestic market for the rest of 2023 in an effort to help the ruble as the currency slumped toward 100 per dollar, its weakest in 16 months.
Corporate Highlights:
- Roblox Corp. slid after reporting that people were spending less time playing its games in the second quarter and missing Wall Street’s estimates.
- Lyft Inc. retreated after the company reported its slowest revenue growth in two years, overshadowing a better-than-expected outlook for earnings, as the company struggles to get its ridership back on track.
- WeWork Inc. slid after saying there’s “substantial doubt” about its ability to continue operating. The company cited sustained losses and canceled memberships to its office spaces.
- Verizon Communications Inc. is raising prices on some existing wireless plans to help boost revenue and offset slumping subscriber growth.
- Penn Entertainment Inc. rose after Walt Disney Co.’s ESPN has signed a long-term exclusive agreement with the casino operator, licensing its brand for sports betting and deepening the media giant’s ties to the growing online gambling business.
- DraftKings Inc. and Flutter Entertainment Plc fell on concern the deal will increase competition in the sport-betting industry.
Key events this week:
- China CPI, PPI, money supply, new yuan loans and aggregate financing, Wednesday
- India rate decision, Thursday
- US initial jobless claims, CPI, Thursday
- Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 12:09 p.m. New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0980
- The British pound fell 0.2% to $1.2721
- The Japanese yen was little changed at 143.52 per dollar
Cryptocurrencies
- Bitcoin fell 0.9% to $29,712.82
- Ether fell 0.7% to $1,850.94
Bonds
- The yield on 10-year Treasuries declined two basis points to 4.00%
- Germany’s 10-year yield advanced three basis points to 2.50%
- Britain’s 10-year yield declined two basis points to 4.36%
Commodities
- West Texas Intermediate crude rose 0.3% to $83.17 a barrel
- Gold futures fell 0.5% to $1,950.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller, Richard Henderson and Cecile Gutscher.
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