4:20pm: Tech stocks struggle
US stock indexes closed lower as investors weighed in on a batch of disappointing company reports and economic data ahead of a key inflation reading due later in the week.
The Dow closed down 58 points, or 0.2% at 32,774, and the S&P 500 dipped 18 points, or 0.4% to close at 4,122.
Meanwhile, chipmakers again dragged down the Nasdaq Composite which shed 151 points, or 1.2% to 12,494. The declines came after memory chipmaker Micron warned that revenue may fall short of its prior guidance because of “macroeconomic factors and supply chain constraints.” Micron shares dipped more than 3.5%. In addition, shares of NVIDIA Corporation fell nearly 4% to $170.86, a day after the stock tumbled roughly 6% as a result of a significant revenue miss.
NVIDIA and Micron "are two big players that I think investors thought were in a better position to navigate through some of these recent supply chain issues," Ed Moya, senior market analyst at Oanda told CNBC. "I think there’s concern that this is really going to weigh on tech."
He continued, "Everything that we’re getting is [showing] that inflation is having a much harder impact on corporate America outlooks, and that’s why I think this market is going to be difficult to continue to buy equities."
12.05pm: US stocks fear looming inflation
All three major US indices were in the red at midday, as traders pondered the risks inherent in high inflation against the upcoming consumer price index (CPI) reading.
The Dow Jones Industrial Average was flat at 32,813 points, the S&P 500 was down by 0.3% at 4,124, and the Nasdaq Composite was down by 1.3% at 12,478.
Joshua Mahony, senior market analyst at online trading platform IG, said the US market opening today has highlighted the mounting concerns in anticipation of tomorrow’s CPI data from July.
“The fears around another potential inflation-fuelled selloff in high multiple stocks has dented the likes of the Nasdaq in particular, with the recent earnings-based optimism starting to wane ahead of tomorrow’s crucial US inflation release,” Mahony said.
For traders, Mahony noted, there is an intrinsic risk linked with the prevalent belief that inflation will remain at 9.1%, “for any upside surprise could easily spark fears of another sharp increase in rates thanks to Friday’s bumper jobs report.”
“With earnings season drawing to an end (with 89% reported), there is a distinct possibility that we will see the focus shift back to the worrisome economic and monetary policy outlook that lies ahead,” Mahony said.
At midday, the major movers included TV ratings company Nielson Holding, up over 21% on news of a US$10 billion buy-out by a group of private equity firms.
Also at midday, Norwegian Cruise Lines was down almost 12%, on news of its 2Q revenue miss. After reports that microchip supplier Micron Technology was lowering 2023 capital expenditures, Lam Research was down 8.5%, and Applied Materials was down almost 8%.
9.35am: Volatility continues
US stocks opened slightly lower with choppy trading expected to continue ahead of the release of the all-important consumer price index (CPI) data for July on Wednesday.
Just after the open, the Dow Jones Industrial Average was down 16 points at 32,817 points, while the S&P 500 had dipped 6 points at 4,134 points and the Nasdaq Composite had shed 80 points at 12,564 points.
Tuesday’s meme stock rally appears to largely be over with AMC Entertainment Holdings (NYSE:AMC) Inc and GameStop Corp (NYSE:GME) both down about 4% at the open, while Bed Bath and Beyond managed to edge about 3% higher.
Novavax Inc shares had tumbled about 28% after the biotechnology company slashed its 2022 sales forecast as its COVID-19 vaccine has struggled to compete.
After initially rising about 0.4% in pre-market trading, The Boeing Company was down about 1% following the news yesterday that the airline manufacturer had received approval from the US Federal Aviation Administration to resume the delivery of its 787 Dreamliners, which had been suspended for much of the past two years as the company addressed manufacturing flaws.
Meanwhile, new data from the US Bureau of Labor Statistics shows that non-farm business sector labor productivity decreased 4.6% in 2Q, 2022. Output decreased 2.1% and hours worked increased 2.6%.
According to the Bureau, hourly compensation increased 5.7% in the non-farm business sector during the quarter. However, real hourly compesation, which takes into account changes in consumer prices, decreased 4.4%.
6.30am: Inflation is the key
US stocks were expected to edge higher at the open on Tuesday after a mixed performance Monday following last week's above-forecast July US non-farm payrolls reports, with investors now focused on the latest US CPI inflation numbers due out tomorrow.
Futures for the Dow Jones Industrial Average were trading 0.2% higher pre-market, while those for the broader S&P 500 index were also up 0.2%, and contracts for the tech-laden Nasdaq-100 added 0.1%.
In recent weeks, better-than-expected corporate earnings and strong labor market data have dispelled concerns about an imminent US recession, helping stock markets rebound from their lows, but inflation remains the elephant in the room.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank commented: "Investors are confident that inflation in the US may have peaked last month, as the New York Fed's Survey of Consumer Expectations showed steep drops in inflation expectations in July.
"For economists, inflation expectations are more important than the actual data, because it is believed to be self-fulfilling. Plus, Federal Reserve (Fed) chair Jerome Powell mentioned the New York Fed's results as a reason for more aggressive rate increases at the June FOMC meeting. Therefore, the latest NY Fed survey may have given some relief to the Fed, although, tomorrow’s CPI print will say the last word when it comes to the market sentiment."
She added: "A print in line with expectations, or ideally softer, should calm down the hawkish Fed expectations, whereas a figure above expectations, or God forbid, above last month’s 9.1% would send another shockwave to the market.
"For now, there is reason to be optimistic as the drop in energy and commodity prices should have a cooling effect on inflation, yet, higher labour costs could keep inflation sticky at undesirably high levels."
On the data front on Tuesday, US labor productivity is expected to show a decline for a second straight quarter.
The corporate earnings season is starting to wind down, though some major companies are still set to report figures, with Warner Music Group, TPG and Emerson Electric among the companies set to report ahead of the opening bell, while Roblox and Wynn Resorts will release figures after markets close.
Ahead of the opening bell, Novavax stock slumped almost 30% after cutting its sales forecasts due to poor uptake of its COVID-19 vaccine, and Clover Health Investments fell 10% after delivering a mixed earnings report and saying its chief executive was stepping down.
Contact the author at jon.hopkins@proactiveinvestors.com