S&P 500, Nasdaq fall on fears of profit hit from inflation, rate hikes

NEW YORK: The S&P 500 and the Nasdaq fell on Tuesday in the run-up to a key inflation reading and the start of third-quarter results from companies amid falling profit expectations, while gains in drugmaker Amgen helped boost the Dow.

With recent jobs and inflation data suggesting more big interest rate hikes by the Federal Reserve, Wall Street’s main indexes have been clocking losses in the past few sessions on fears of the economy slipping into a recession.

The consumer prices report on Thursday is expected to show another rise in the headline inflation last month, which is likely to cement the case for another 75-basis-point hike in November.

“The market wants to see data, show me the numbers, show me we’re getting inflation down. Until then, this market is probably stuck in this whole death by a 1,000 cuts scenario,” said Dennis Dick, founder and market structure analyst at Triple D Trading Inc.

Money markets are pricing in a 94% chance of another 75 bps hike, while Wall Street analysts expect third-quarter profit for S&P 500 companies to have risen just 4.1% from a year ago, much lower than an 11.1% increase expected at the start of July. .

Quarterly reports from big US banks on Friday are likely to provide more insight into the health of the economy.

“The net interest margin numbers should be very good for those banks that are not tied to investment banking revenue, but they should be pretty weak for those that are,” said Rick Meckler, partner at Cherry Lane Investments.

Amid a heightened possibility of another jump in borrowing costs, the yield on the benchmark 10-year US Treasury note rose to a day’s high of 4.006%, making the growth and technology stocks less attractive.

Microsoft Corp, Amazon.com, Tesla Inc , Alphabet Inc and Netflix Inc were down between 0.5% and 5.2%.

Recession fears have gripped markets, with the International Monetary Fund predicting a meager 1.6% growth in the US economy this year and brokerage Nomura warning of a deeper downturn in 2023.

It downgraded real GDP outlook for the economy to a decline of 1.8% from peak to trough from a 1.5% fall previously.

At 12:11 p.m. ET, the Dow Jones Industrial Average was up 191.08 points, or 0.65%, at 29,393.96, the S&P 500 was down 2.75 points, or 0.08%, at 3,609.64 and the Nasdaq Composite was down 38.50 points, or 0.37%, at 10,503.61.

The CBOE Volatility index, rose for a fourth straight session, inching closer to near two-weeks high.

Among individual stock moves, Amgen Inc jumped 6%, providing the biggest boost to the blue-chip Dow, after a report said Morgan Stanley upgraded the drugmaker’s stock to “overweight” from “equal weight”.

Advancing issues outnumbered decliners by a 1.00-to-1 ratio on the NYSE. Declining issues outnumbered advancers for a 1.10-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week high and 95 new lows, while the Nasdaq recorded 15 new highs and 492 new lows.