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U.S. stocks on Wednesday were poised to drop for a third straight session as fears of inflation continued to weigh on sentiment on Wall Street. Investors will watch for minutes from the Federal Reserve’s most recent policy meeting for clues on how the central bank will address evidence of pricing pressures building in the economy, which it has so far described as transitory.

Ahead of that, investors continue to parse the health of the retail sector as Target Corp. and Lowe’s Cos deliver earnings.

How are stock benchmarks performing?

On Tuesday, the Dow
DJIA,
-0.78%
fell by 267.13 points, or 0.8%, to close at 34,060.66, the S&P 500
SPX,
-0.85%
finished with a loss of 35.46 points, or 0.9%, at 4,127.83, while the Nasdaq Composite
COMP,
-0.56%
slipped 75.41 points, or 0.6%, to finish at 13,303.64.

What’s driving the market?

Upward momentum in stocks appeared to be unwinding as investors awaited an account of the Fed’s most recent policy meeting in April.

The minutes of the meeting aren’t likely to provide substantial insight into the central bank’s policy that hasn’t already been gleaned from statements from members of the rate-setting Federal Open Market Committee in recent days, but investors’ fixation with inflation has invoked greater significance to the report, which will be released at 2 p.m. Eastern Time.

Back in late April, the FOMC voted unanimously to maintain accommodative policies, aimed at holding down borrowing costs between 0% and 0.25%, and Fed Chairman Jerome Powell described the economic recovery from the COVID pandemic as uneven and incomplete.

But market participants are struggling with the concept of “transitory” inflation pressures, as described by a number of Fed officials.

“In recent speeches, Fed officials have indicated that they view the rise in inflation as temporary, and that the downside surprise in payrolls was probably due to a temporary labor supply shortage, likely related to the pandemic and enhanced unemployment benefits,” wrote analysts at UniCredit.

“Our view remains that tapering will be discussed around August/September this year, with a formal announcement in December that tapering will commence in 1Q22,” the analysts wrote.

“The Fed is putting out the message that inflation is transitory and that there are still 8 million unemployed,” wrote Sebastien Galy, strategist at Nordea Asset Management.

“The problem is that price expectations in various markets from wood to labor and company pricing strategies are running ahead of economic reality. The litmus test will be in the data and the front pages of newspapers as companies announce salary increases,” the analyst wrote.

Some market participants and analysts fear that after years of not achieving the Federal Reserve’s 2% annual inflation target, one that the Fed has said it is now willing to overshoot to achieve, that a double-digit rise in inflation a la the 1960s may be brewing, Bloomberg News reported on Wednesday.

“I would rather see us go back to a Fed that is concerned about pre-empting inflation, rather than a Fed that is concerned about pre-empting fears that it will be concerned about inflation,” said former Treasury Secretary Larry Summers on Tuesday, in a discussion at an Atlanta Fed conference on financial markets.

On the public health front, India recorded a global record of 4,529 deaths from COVID-19 in a single day on Tuesday, according to its official numbers. The previous record was the 4,468 deaths counted in the U.S. in January. Brazil is third in cases with 15.7 million and second in deaths with 439,050. 

Which companies are in focus?
  • Lowe’s Cos. LOW reported Wednesday fiscal first-quarter profit, sales and same-store sales that rose above expectations, and provided an upbeat outlook. 
  • Target
    TGT,
    -1.39%
    reported net income totaled $2.097 billion, or $4.17 per share, up from $284.0 million, or 56 cents per share, last year. Adjusted EPS of $3.69 was 525% higher than last year, reaching an all-time high.
  • Southwest Airlines Co. LUV disclosed Wednesday that April operating revenue and load factor were in line with expectations, and said it continues to see improvement in leisure passenger demand and bookings for May and June travel. 
  • Purple Innovation Inc. shares
    PRPL,
    +0.87%
    tumbled in premarket trade Wednesday, after the mattress and sleep products company priced a secondary offering of 7.3 million shares at $30 each, a discount over its closing price of $32.50 on Tuesday. 

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