Dow heads for 3rd day of losses, S&P pulls back from record ahead of inflation update

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U.S. stock benchmarks were mixed Wednesday, hovering around record-high territory, 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, also was buoying yield-sensitive assets like technology stocks.

What are major benchmarks doing?
  • The Dow Jones Industrial Average DJIA, -0.28% fell 69 points, or 0.2%, to 34,528.
  • The S&P 500 index SPX, -0.04% was virtually flat near 4,226, 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, +0.06% rose 15 points, or 0.1%, to around 13,939, 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%.

Read: Why stock traders say ‘never short a dull market’

What’s driving the market?

Equities remain stuck in a trading range, with the S&P 500 index hovering near an all-time high and the Dow headed for a third day in a row of losses during a marketwide vigil centered on the prospects for inflation.

“I think the market is trying to digest what’s going on in rates,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers in an interview with MarketWatch, while pointing to the recent fall in the 10-year Treasury note yield to about 1.49%, despite expectations that it might head to around 2% by year’s end.

The fall in 10-year yields occurred despite the surge in April’s consumer-price index, a popular inflation metric, which put already jittery investors about inflation on high alert.

Janasiewicz said falling benchmark yields point to investors “fearing the fear of inflation, as opposed to actual inflation.” In the same vein, he thinks higher commodity prices, including oil near $70 a barrel, have been part of that same narrative.

“But to us, the backdrop still is supportive,” he said. “The cyclical trade still works.”

A May reading of the U.S. consumer-price index due on Thursday morning is expected to be the main event of the week. The headline consumer price index is expected to rise by an outsized 0.5% in May and 4.8% for the year. A hotter-than-expected April CPI reading, which showed prices rose 4.2% year-over-year, briefly rattled markets last month.

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.

Economic Preview: U.S. inflation is still climbing and now higher labor costs are adding to the pressure

While the overall action in stocks has been comparatively subdued this week, trading among meme stocks, those powered by social-media mentions, have been seismic, including in shares of AMC Entertainment Holdings AMC, -6.27%, GameStop Corp. GME, +5.78%, Best Buy BBY, -2.37%, and a number of new entrants swept up in the trend inspired by individual investors. GameStop reports earnings Wednesday after the bell.

In Washington, 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 still aims to reach a deal on the issue with a different group that includes Republican senators.

On the pandemic front, the Biden administration plans to announce a new effort to buy 500 million shots of the Pfizer Inc. PFE, +2.30% COVID-19 vaccination to distribute to other countries, the Washington Post reported.

Which companies are in focus?
How are other assets faring?
  • The yield on the 10-year Treasury note TMUBMUSD10Y was trading at 1.49%, 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 0.1% higher.
  • Oil futures CL00 retreated, with West Texas Intermediate crude for July delivery off 9 cents, or 0.1%, settling at $69.96 a barrel. Gold futures GC00 edged higher by $1.10, or about 0.1%, settling at $1,895.50 an ounce.
  • European equities closed slightly higher, with the pan-Continental Stoxx Europe 600 SXXP  up less than 0.1%. London’s FTSE 100 UKX ended down 0.2%.
  • In Asia, the Shanghai Composite SHCOMP closed 0.3% higher, the Hong Kong’s Hang Seng Index HSI ended 0.1% lower and Japan’s Nikkei 225 NIK fell 0.4%.

William Watts contributed reporting