Stocks fell Tuesday morning, with the Nasdaq adding to Monday’s losses as technology stocks came under increasing selling pressure as inflation concerns rose.
The S&P 500 and Dow also dropped. A day earlier, the Dow briefly topped 35,000 for the first time ever before erasing gains to end in the red. The Nasdaq dropped 2.6% to post its worst day since March. The S&P 500 also dropped more than 1%, with technology stocks sliding as traders rotated away from high growth stocks that could be impacted by rising inflation during the recovery out of the pandemic.
With a strong quarterly earnings season winding down – aside from a couple notable names including Disney (DIS) reporting later this week – investors are taking stock of the next catalysts for markets, with rising prices a key focal point.
According to data from Bank of America, mentions of inflation have increased nearly 800% year-over-year in quarterly earnings calls and reports. Bank of America equity strategist Savita Subramanian said that strong earnings, rising inflation and improving corporate sentiment „all point to a continued rotation into Value.“
“We have an accelerating growth environment with the prospects for some inflation. And for investors, when they think about inflation, they tend to move away from tech stocks, because they think of tech stocks as longer-duration assets in which you’re not going to be paid well into the future, and they’d instead rather own parts of the market that are more highly correlated with nominal GDP, “ Brian Levitt, global market strategist for Invesco, told Yahoo Finance. „What we’re going through right now is a reversion back to where we likely otherwise would have been had it not been for the coronavirus outbreak. In that reversion, you’ll see more economic sensitive names outperform.“
„But it doesn’t change the long-term structural story,“ he added. „The long-term structural stories, all the shifts that are taking place in society, they don’t change. And those tech stocks are on the cutting edge of it, so they were bound for some type of volatility or some type of correction, particularly if inflation concerns increased.”
This week, investors are set to also receive the latest monthly consumer price index and producer price index from the Bureau of Labor Statistics, which are each expected to reflect a strong jump in prices over last year’s pandemic-depressed levels. The sustainability of these inflationary trends will ultimately guide the Federal Reserve’s monetary policy decisions, determining whether they will maintain their current accommodative policies that have boosted both the economy and underpinned asset prices, or pull back some of their support.
“One of the big questions of course is, how does the Fed respond to all this inflationary pressure out there, and how long can they hold onto this concept of being transient before they have to start saying, we’re going to either pull back on quantitative easing asset purchases, or we’re going to have to start raising the Fed funds rate,“ Robert Dye, Comerica Bank chief economist, told Yahoo Finance. „They’re going to telegraph that well in advance, but I don’t know if they’re going to be able to hold out until the end of this year like some in the Fed have implied.”
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10:00 a.m. ET: Job openings surged by 8.1 million in March, reaching the highest level on record
U.S. job openings rocketed to a record high in March as vaccine-enabled business reopenings at the start of spring left many firms scrambling to find workers to fill their vacancies.
Job openings in March rose to 8.123 million, according to the Bureau of Labor Statistics‘ monthly report. This marked the highest level since the BLS began tracking the metric in late 2000. This was well above the 7.5 million openings expected, according to Bloomberg data, and jumped from the upwardly revised 7.526 million openings from February.
The layoffs and discharge rate fell to a series low of 1.0% in March, the BLS added, while the quits rate remained unchanged month-on-month at 2.4%.
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9:30 a.m. ET: Stocks open lower
Here’s where markets were trading shortly after the opening bell:
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S&P 500 (^GSPC): -48.07 points (-1.15%) to 4,150.36
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Dow (^DJI): -269.09 points (-0.77%) to 34,473.73
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Nasdaq (^IXIC): -254.37 points (-1.86%) to 13,152.42
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Crude (CL=F): -$1.02 (-1.57%) to $63.90 a barrel
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Gold (GC=F): -$15.90 (-0.87%) to $1,821.70 per ounce
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10-year Treasury (^TNX): +2.5 bps to yield 1.627%
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8:29 a.m. ET: Small business optimism reaches a five-month high in April, but labor shortages hit record level
Small business optimism rose to a five-month high in April, according to the National Federation of Independent Business‘ monthly survey, as consumer demand picked back up and stoked spending at some of the firms hardest hit by the pandemic. However, business owners flagged labor shortages as an exigent issue, and average selling prices were hiked.
The headline index rose to 99.8 in April from 98.2 in March, bringing the Optimism Index up by a total of 4.8 points over the last three months. However, a record 44% of owners reported that they had job openings that could not be filled, and the net percent of owners increasing average selling prices rose by 10 percentage points to 36%, or the highest reading since 1981.
“Small business owners are seeing a growth in sales but are stunted by not having enough workers,” NFIB Chief Economist Bill Dunkelberg said in a press statement. “Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth. Owners are raising compensation, offering bonuses and benefits to attract the right employees.”
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7:23 a.m. ET Tuesday: Nasdaq futures drop 1%
Here’s where markets were trading ahead of the opening bell:
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S&P 500 futures (ES=F): 4,151.75, down 31.75 points or 0.76%
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Dow futures (YM=F): 34,505.00, down 163 points or 0.47%
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Nasdaq futures (NQ=F): 13,182.75, down 174.00 points or 1.3%
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Crude (CL=F): -$0.42 (-0.65%) to $64.50 a barrel
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Gold (GC=F): +$4.10 (+0.22%) to $1,841.70 per ounce
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10-year Treasury (^TNX): +0.6 bps to yield 1.606%
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6:14 p.m. ET Monday: Stock futures open mixed
Here’s where markets were trading as the overnight session kicked off:
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S&P 500 futures (ES=F): 4,180.75, down 2.75 points or 0.07%
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Dow futures (YM=F): 34,678.00, up 10 points or 0.03%
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Nasdaq futures (NQ=F): 13,327.00, down 29.75 points or 0.22%
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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