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The stock market was falling on Wednesday as fears of high inflation without strong economic growth gripped markets.
In morning trading, the
Dow Jones Industrial Average
was down 288 points, or 0.8%, after the index seesawed this week—dropping more than 300 points Monday before rebounding a similar amount Tuesday to close at 34,314. The
S&P 500
was down 0.6%. The
Nasdaq Composite
was off 0.3%.
The near-term economic picture is looking more bleak, as inflation heats up. Factory orders in Germany fell 7.7% month-over-month, worse than the expected 2.1% decline, while retail sales in the European Union rose 0.3%, missing the expected increase of 0.8%. Meanwhile, the supply shortages around the globe that are contributing to the productivity weakness are also creating inflation, which could eat into consumer demand.
“Negative 7.7%…blame car chips, blame supply chain issues… The stagflation argument continues to grow,” wrote NatAlliance Securities’ Andrew Brenner.
Companies are reporting third-quarter earnings and already, some are not meeting sales expectations because of the shortages, while others are reporting that their profit margins are getting squeezed.
Plus, the more persistent inflation is, the more likely the Federal Reserve is to raise short-term interest rates in 2022. Stagnating economic growth and higher rates could, at some point, put a dent into the economy. The 2-year Treasury yield rose to 0.3% from 0.28%.
Worries about economic and earnings growth are putting outsized pressure on the Dow, which is more comprised of economically-sensitive, or “cyclical” stocks.
Earlier, fast-growing technology stocks—as seen by the Nasdaq’s movements—were falling harder than cyclicals. That was because the 10-year Treasury yield had just risen to 1.55% from 1.53%, and was above the key level of 1.54%.
The yield has spiked from 1.31% since the end of September, when the Federal Reserve confirmed it will soon begin tapering, or reducing its bond buying. That would drive less money into the bond market, lowering bond prices and lifting their yields. A surge in bond yields makes future profits immediately less valuable—and growth companies are expecting large profits many years down the line.
While the 10-year yield has slipped back to 1.52%, many on Wall Street still expect it to keep climbing and it isn’t as if tech stocks were continuing their rebound seen Tuesday.
On Wednesday, the ADP jobs report showed the U.S. economy added 568,000 private-sector jobs in September, above expectations for 425,000. Investors are looking to the Bureau of Labor Statistics’ payrolls report out Friday for a final read on the economy.
European sentiment was also weighed on amid a global energy crunch that has seen natural-gas prices in the region rise more than 500% since the beginning of the year—spiking 20% on Tuesday alone.
Elsewhere, the New Zealand central bank raised rates for the first time in seven years with a hike of the main cash rate by 25 basis points to 0.5%. The Reserve Bank of New Zealand warned about persistent cost pressures and how inflation was expected to rise above 4% in the near term.
Here are seven stocks on the move Wednesday
Palantir Technologies
(PLTR) rose 3.7% after the company said late Tuesday it won an $823 million U.S. Army intelligence contract.
Novavax
(NVAX) was down 3%, continuing a 4.6% fall Tuesday after the company announced a number of new leadership appointments.
United States Steel
Corp.
(X) and
Nucor
(NUE) were falling 8.2% and 4.1%, respectively, after Goldman Sachs downgraded both companies. U.S. Steel was cut to Sell from Neutral, while Nucor was cut to Neutral from Buy.
American Airlines
(AAL) stock fell 4.9% after Goldman Sachs downgraded it to Sell from Neutral. The investment bank also downgraded
JetBlue Airways
(JBLU) to Neutral from Buy. JetBlue shares dipped 5.3%.
Constellation Brands
(STZ) stock was falling 0.3% after the company reported a profit of $2.52 a share, missing estimates of $2.80 a share, on sales of $2.3 billion, in line with expectations. The company also issued strong earnings guidance and highlighted that demand for its products remains sturdy. The stock was outperforming the broader market.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
Read More:Stock Market Today: Dow Falls Again as Inflation Worries Rise
2021-10-06 15:00:00