Market Snapshot: U.S. stocks struggle for momentum ahead of inflation report

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Market Snapshot: U.S. stocks struggle for momentum ahead of  inflation report

U.S. stocks drifted lower Tuesday, with investors reluctant to make big bets a day ahead of inflation data that may decide the fate of the recent summer rally.

What’s happening
  • The Dow Jones Industrial Average DJIA, -0.09% was up less than 2 points at 32,834.
  • The S&P 500 SPX, -0.43% was off 11 points, or 0.3%, at 4,129.
  • The Nasdaq Composite COMP, -1.33% was off 122 points, or 1%, at 12,522.

On Monday, the Dow eked out a gain of 0.1%, while the S&P 500 and Nasdaq Composite each lost 0.1%. The Nasdaq Composite is up 18.8% from its 2022 low touched in mid-June, but remains down 19.2% for the year to date.

What’s driving markets

Major indexes were becalmed near recent highs Tuesday ahead of the July consumer-price index report on Wednesday.

Hopes that inflation may have peaked and that the Federal Reserve may thus be able to adopt a less aggressive monetary tightening cycle has helped the S&P 500 index bounce nearly 13% from its 2022 low touched in mid-June.

Economists forecast that a dip in energy prices will help headline year-over-year consumer price index for July fall from the multidecade high of 9.1% to 8.7%. A drop Monday in the New York Fed’s measure of consumer inflation expectations was taken as a positive sign, but strong wage growth data in Friday’s July jobs report and a large rise in unit labor costs in data Tuesday were a source of unease, analysts said.

“A hotter-than-anticipated CPI report will pressure markets this week. An in-line report could be taken in stride as investors have priced in a 75 basis point move by the Fed in September,” said Lindsey Bell, chief markets and money strategist for Ally.

“Either way, we still have to get through another jobs report, more inflation data, and Jackson Hole before we get to the Fed’s September meeting,” Bell said in emailed comments, referring to the annual central banker retreat in Wyoming later this month. “It could be a volatile several weeks ahead.”

A corporate second quarter earnings reporting season that was not as bad as feared has also underpinned sentiment in recent weeks.

However, a sales warning from semiconductor former darling Nvidia Corp. NVDA, -5.24% on Monday gave bulls some pause for thought. And analysts warn the market’s optimistic tone of late will be further challenged should the CPI report come in hotter than expected.

Read: Nvidia is hit by another ‘crypto hangover,’ and that isn’t the only problem

“This temporary calm could clearly all change tomorrow with the latest U.S. CPI so maybe the next 30 hours will be the calm before the storm or perhaps herald in the real start of the dog days of summer,” said analysts at Deutsche Bank.

See: A surging stock market is on the verge of signaling a ‘huge’ move — but there’s a catch

Meanwhile, the debate continues over whether the latest stock market advance is the start of a more prolonged uptrend or a rally that will fail when faced with slower economic growth and higher interest rates.

Read: Why the S&P 500’s ‘bounce within a bear market’ could fizzle before it hits 4,200

Wells Fargo strategists warned that profit projections were too rosy. “We expect slowing revenue growth and higher costs to squeeze margins in the coming quarters, likely leading to an earnings recession over the next 12 months,” the Wells Fargo analysts said in a note to clients.

Need to Know: The red flag that preceded a halving of global equities in 2000 and 2007 is back, warns Citi

The “meme-stock” phenomenon was back on display, with Bed Bath & Beyond Inc. BBBY, -22.34% shares soaring 36% Monday with no apparent news driving the move. AMC Entertainment Holdings Inc. AMC, -8.81% and GameStop Corp. GME, -8.76% also jumped Monday.

Shares of Bed, Bath & Beyond tumbled more than 14% on Tuesday, while AMC and GameStop also fell.

Also see: Bed Bath & Beyond leads rally in ‘meme’ stocks as Reddit group appears to be jumping back on board

Companies in focus
  • Shares of Micron Technology Inc. MU, -5.44% dropped 5%, after the memory-chip company said that it expects “challenging” market conditions for the current quarter and the next one.
  • Novavax Inc. NVAX, -29.78% shares slumped by nearly 30% after executives at the vaccine maker late Monday slashed their annual sales guidance in half while wildly missing financial expectations.
  • Shares of Take-Two Interactive Software Inc. TTWO, -2.86% dropped 2.6% after the videogame publisher revised its outlook lower, to not only account for its recent acquisition of Zynga but for shifts in the release dates of some titles.
  • Applebee’s and IHOP restaurant chains parent Dine Brands Global Inc. DIN, -0.79% reported second-quarter profit and revenue that beat Wall Street forecasts, citing “sustained off-premise traffic” and a continued recovery of dining in. Shares edged down 0.3%.
  • Hyatt Hotels Corp. H, +0.88% on Tuesday reported profit and revenue that topped expectations amid growth in hotel demand. Hyatt shares were up 0.8%.
  • Shares of video gaming software company Unity Software Inc. U, +0.04% rose 1.2%, while Applovin Corp.’s stock APP, -10.34% tumbled 10%, after Applovin said it submitted an unsolicited bid to buy Unity in an all-stock deal with an enterprise value of $20 billion.
How are other assets faring
  • Oil turned higher after news reports said Russia cut off pipeline crude flows to southern Europe. The U.S. benchmark CL.1, -0.47% rose 0.9% to trade near $91.60 a barrel.
  • The 10-year Treasury yield TMUBMUSD10Y, 2.783% rose 2.7 basis points to 2.79%. Yields and debt prices move opposite each other.
  • The ICE U.S. Dollar index DXY, -0.25%, a measure of the currency against a basket of six major rivals, fell 0.4%, while gold GC00, +0.35% ticked up 0.4% to trade above $1,812 an ounce.
  • Bitcoin BTCUSD, -4.16% fell 2.9% to trade near $23,130.
  • Asia markets were mostly softer, with Hong Kong’s Hang Seng HSI, -0.21% down 0.2% and Japan’s Nikkei 225 NIK, -0.88% off 0.9%. In Europe, the Stoxx 600 SXXP, -0.67% fell 0.6%, while London’s FTSE 100 UKX, +0.08% edged up 0.2%.

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