All eyes are on inflation data Wednesday.
Angela Weiss/AFP/Getty ImagesStocks were slipping on Wednesday, as investors responded to higher-than-expected inflation figures.
In midday trading, the Dow Jones Industrial Average was down 39 points, or 0.1%, after the index slipped 112 points Tuesday to close at 36,319. The S&P 500 was down 0.2%, and the Nasdaq Composite declined 0.5%.
The bond market was signaling some concern about the Federal Reserve’s monetary policy and economic growth. The stock market was similarly concerned, but it was performing better than it appeared on the surface.
The latest data on Wednesday showed that inflation isn’t slowing down. The consumer-price index rose 0.9% month over month for October, higher than the expected 0.6% rise. The year-over-year gain was 6.2%, higher than the previous result of 5.4%.
Markets were suggesting that Wednesday’s inflation data will make the Fed more aggressive on interest rate increases. The 2-year Treasury yield popped to 0.51% from 0.46% minutes before the data hit the wires.
“Stronger-than-expected core inflation increases our confidence that the Fed will lift off policy rates in June 2022 and deliver three 25 basis point rate hikes next year,” wrote Andrew Hollenhorst, Citigroup economist.
The main risk is that the Fed could be lifting rates, denting economic demand, after inflation would have already reduced some demand.
Those questions about longer-term economic growth and inflation are keeping a lid on the 10-year Treasury yield, which is at 1.53%, down from its peak for the second half of this year of 1.7%.
To be sure, some of what has recently pushed long-term bond prices higher can be attributed to investors rebalancing into bonds and buyers forcing those who were shorting Treasury bonds to buy bonds back.
The yield’s rise from 1.44% to close Tuesday’s trading is a welcome sight for stock investors.
A slight majority of S&P 500 stocks were gaining on Wednesday, even with the major indexes lower, according to FactSet. Economically-sensitive stocks were performing the best.
Economically-sensitive stocks, or cyclicals, are still trading cheaply, giving investors the opportunity to buy more—if they’re optimistic about the economy. Cyclical stocks on the S&P 500 are trading at an aggregate forward earnings multiple that is 0.7 points lower than that of the broader index, according to Credit Suisse. That’s below the average since 2011 that shows cyclicals trading at a multiple 0.8 points higher than the index’s.
It was technology stocks—less economically-sensitive—dragging the S&P 500 lower. The Technology Select Sector SPDR ETF (XLK) dropped 0.9%.
Overseas, Tokyo’s Nikkei 225 dropped 0.6% and the pan-European Stoxx 600 rose 0.2%.
Also read: Bond Yields Won’t Stop Falling. What’s Behind the Puzzling Move.
Here are five stocks on the move Wednesday:
DoorDash (ticker: DASH) shot up 14%, after the leading food delivery group reported strong quarterly earnings late Tuesday and said it would buy Helsinki-based Wolt Enterprises for $8.1 billion in stock.
RingCentral (RNG) stock soared 28% after the company reported better-than-expected results and announced a new partnership with communications services companies Mitel.
Perrigo (PRGO) stock fell 12% after the company reported a profit of 45 cents a share, missing estimates of 65 cents a share, on sales of $1.04 billion, below expectations for $1.05 billion. The company also issued a profit warning for the full year.
Wendy’s (WEN) stock slipped 7.5% after the company reported a profit of 19 cents a share, beating estimates of 18 cents, on sales of $470.3 million, below expectations for $470.5 million.
ConocoPhillips (COP) stock dropped 2.3% after getting downgraded to Hold from Buy at Société Générale.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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November 10, 2021 at 10:50PM
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