Stocks fell on Friday, giving up gains from the first half of the session the next day after a historic turnaround as investors digested inflation expectations.
The Dow Jones Industrial Average is down 156 points, or 0.52%. The S&P 500 is down 1.15% for him and the Nasdaq Composite is down 1.43%.
Stocks fell to session lows after a University of Michigan consumer survey showed rising inflation expectations.
Earlier in the session, bank stocks rose, leading the broader market following four key earnings reports. Wells Fargo has beaten Wall Street’s earnings expectations with a profit of more than 2%. JP Morgan was up more than 1% and Citigroup was up more than 2%.
The positive move comes amid a negative outlook for the earnings season. Earnings for the S&P 500 companies rose just 2.4% in the third quarter, according to the latest analyst forecasts collected by FactSet. This is the worst growth rate since the third quarter of 2020, the center of the pandemic.
When the third quarter began, revenue growth was expected to be 10% for the period, but rising costs and interest rates are weighing on corporate earnings. By the start of the reporting season, 65 S&P companies had issued negative guidance, while only 41 had a positive outlook, according to FactSet data.
The report was released a day after the market saw a significant recovery. The Dow ended Thursday’s session up 827 points after falling more than 500 points at intraday lows. The S&P 500 rose his 2.6% to break his six-day losing streak, and the Nasdaq Composite rose his 2.2%.
Thursday marked the fifth largest intraday reversal from an all-time low for the S&P 500 and the fourth largest on the Nasdaq, according to SentimenTrader.
The move beat expectations in September following the release of the US consumer price index, the main inflation indicator in the US. Initially, this weighed on the market as investors expected the Federal Reserve to continue its aggressive rate hike plans. But then they brushed aside their worries.
Nonetheless, continued inflation remains a problem for the Fed and investors’ concerns about tightening central bank policy.
UBS’s Global Wealth Management said, “Core CPI is still moving in the wrong direction and the labor market is strong, so the conditions for the Fed’s policy reversal have not been met, and this is a sign of a sustained rally in equity markets. It will be one of the conditions for Chief Investment Officer Marc Hefele said in a note on Friday. “Furthermore, if inflation continues to rise for an extended period and the Fed continues to raise rates, the cumulative impact of policy tightening could push the U.S. economy into recession and undermine corporate earnings prospects.”
