Growth stocks push S&P 500, Nasdaq to record highs; inflation data weighs

The S&P 500 and Nasdaq dropped on Tuesday after hitting record highs earlier in the session, with investors digesting a jump in consumer prices in June and earnings from JPMorgan and Goldman Sachs that kicked off the quarterly reporting season.


The S&P 500 and Nasdaq hit fresh record highs but quickly fell into negative territory after an auction of 30-year Treasuries showed less demand than some investors expected.


Data showed U.S. consumer prices rose by the most in 13 years last month, while so-called core consumer prices surged 4.5% year over year, the largest rise since November 1991.


Economists viewed the price surge, driven by travel-rated services and used automobiles, as mostly temporary, aligning with Federal Reserve Chair Jerome Powell’s long-standing views.


“Any time you get an uptick in interest rates the stock market is going to get nervous, especially on a day like today,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “The CPI said one thing and the bond auction said another.”


Following the midday dip, the S&P 500 growth index was up 0.1%, outperforming the value index’s 0.4% dip.


“With growth outperforming value, the takeaway is clearly that inflation from a market perspective is not a real threat in the long term,” said Keith Buchanan, a portfolio manager at GLOBALT Investments in Atlanta, Georgia.


Most the 11 major S&P 500 sector indexes were down, with real estate and financials both losing about 1%.


The S&P 500 banks index fell 1.2% after JPMorgan Chase & Co reported blockbuster quarterly profit growth but warned that the sunny outlook would not make for blockbuster revenues in the short term due to low interest rates.


Goldman Sachs Group Inc fell 1% after its quarterly earnings exceeded forecasts.


PepsiCo Inc gained 2.4% after raising its full-year earnings forecast, betting on accelerating demand as COVID-19 restrictions continue easing.


June-quarter earnings per share for S&P 500 companies are expected to rise 66%, according to Refinitiv data, with investors questioning how long Wall Street’s rally would last after a near 17% rise in the benchmark index so far this year.


All eyes now turn to Fed Chair Jerome Powell’s congressional testimony on Wednesday and Thursday for his comments about rising price pressures and monetary support going forward.


In afternoon trading, the Dow Jones Industrial Average was down 0.18% at 34,934.04 points, while the S&P 500 lost 0.23% to 4,374.33.


The Nasdaq Composite dropped -0.37% to 14,678.71.


Conagra Brands Inc dropped 5% after the packaged foods company warned that higher raw material and ingredient costs would take a bigger bite out of its profit this year than previously estimated.


Boeing Co fell 3% after the Federal Aviation Administration said late on Monday some undelivered 787 Dreamliners have a new manufacturing quality issue.


Declining issues outnumbered advancing ones on the NYSE by a 2.42-to-1 ratio; on Nasdaq, a 2.87-to-1 ratio favored decliners.


The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 58 new highs and 56 new lows.


(Additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Cynthia Osterman) In Australia, the prospect of more mergers and acquisitions activity is being scrutinised by investors after a $16.7 billion bid for Sydney Airport Holdings Ltd (SYD.AX) from a pension fund consortium emerged on Monday.


“Sentiment appears to have almost moved past the (economic) reopening trade and into outlook for corporate earnings that are coming up in August,” Karen Jorritsma, head of equities at RBC Capital Markets in Sydney told Reuters.


“Generally (earnings) ‘confession season’ has been remarkably good, and with balance sheets in such great shape the tide is turning to potential for M&A.”


Globally, the publication of the U.S. Federal Reserve’s Federal Open Markets Committee minutes for June on Wednesday is highly anticipated by investors for guidance on whether ongoing emergency stimulus measures could start to be tapered.


Major European markets were in positive territory overnight despite a jump in the Brent crude price to above $77 a barrel, the highest level since October 2018.


The spike came after OPEC+ ministers called of discussions on Monday after clashing last week when the United Arab Emirates rejected a proposed eight-month extension to output curbs, meaning no deal to boost production has been agreed.


There has been no date set for the next meeting of ministers of OPEC+ countries - the Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia - but sources told Reuters new discussions could begin in the next few days.


Elevated oil prices are adding to concerns that a higher global inflation rate could derail the post-coronavirus pandemic recovery under way in some major world economies.


The Reserve Bank of Australia is expected to keep the official cash rate target on hold at 0.1%, but has flagged it will announce its decisions on the broader quantitative easing programme which is set to end in September.


Economists predict the RBA will limit its three-year bond yield target of 0.1% to the April-2024 bond, rather than extending it to the November-2024 bond.

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