U.S. stocks were experiencing choppy trade early Wednesday, with the Dow fighting to retain opening gains after a report on the service sector for some economists pointed to rising price pressures.
Market participants are also parsing another round of corporate quarterly reports and data from ADP on private-sector employment in April that came in a bit softer than expected but still appears to reflect a healthy recovery from the pandemic.
How are stock benchmarks doing?
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The Dow Jones Industrial Average
DJIA,
+0.39%
rose 13 points to reach around 34,146, a slide of less than 0.1%. The Dow has been trading in a range for the day between 34,217.94 and a low at 34,039.66. -
The S&P 500 index
SPX,
+0.49%
added 13 points, or 0.3%, at 4,178. -
The Nasdaq Composite Index
COMP,
+0.55%
climbed 80 points, or 0.6%, to reach around 13,713.
On Tuesday, the Dow
DJIA,
+0.39%
rose 19.80 points, or 0.1%, to 34,133.03, bouncing close to 370 points from its intraday low of 33,765.68. The S&P 500
SPX,
+0.49%
fell 28 points, or 0.7%, at 4,164.66, while the Nasdaq Composite
COMP,
+0.55%
dropped 261.61 points, or 1.9%, to 13,633.50, for its largest one day decline since Wednesday, March 24, 2021.
What’s driving the market?
Investors were digesting a report from the Institute for Supply Management, which showed that growth in service-oriented businesses such as retailers, restaurants and healthcare providers slipped to 62.7% last month from 63.7% in March. The ISM survey fell a bit short of Wall Street expectations. Economists polled by Dow Jones and The Wall Street Journal had forecast the index to edge up to 64.1%.
However, at least one economist saw pricing pressures emerging in the data.
“The April ISM services report suggests that a combination of strong demand and supply constraints is putting significant upward pressures on prices, underlining that the coming surge in inflation is far broader than just increases in commodity prices and rising goods inflation,” wrote Michael Pearce, senior U.S. economist at Capital Economics.
By contrast, the IHS Markit service sector purchasing managers index for April rose to 63.5, up from 59.7 in March, marking the sharpest upturn in private sector output since data collection began in October 2009, the data-provider said.
The service sector data came after after a private-sector employment report showed that the U.S. gained 742,000 private-sector jobs in April, according to data from Automatic Data Processing. Economists polled by The Wall Street Journal and Dow Jones had expected payrolls to rise by 800,000, while average consensus views from economists surveyed by Econoday were forecasting a rise of 763,000, on a range of 600,000 gains to 1 million for the month. The March reading of private-sector employment marked the biggest gain in six months, up 517,000.
Still, the labor-market reading was seen as a strong one and unlikely to derail the possibility of a 1 million print for nonfarm payrolls gains for April in data due Friday from the U.S. Labor Department, some analysts said.
“While the ADP read may have come in lower than expectations, keep in mind this is the highest number we’ve seen since the beginning of the fall,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial, in emailed comments.
“So we’re definitely moving in the right direction. And with hospitality and leisure jobs leading the pack, we’re seeing proof that the economy is moving toward full reopening, albeit slightly slower than some expected,” the strategist added.
Wall Street has become more attuned to the data amid fears that the economy is overheating due to a combination on fiscal and monetary stimulus that has been put in place to help support the coronavirus-stricken business sector.
On Tuesday, those fears were raised anew when Yellen, the former head of the Federal Reserve and now U.S. Treasury Secretary, suggested that interest rates may need to rise. However, speaking at an event hosted by The Wall Street Journal’s CEO Council Summit she said she wasn’t predicting nor recommending that the Fed raise rates.
“It’s not something I’m predicting or recommending…If anybody appreciates the independence of the Fed, I think that person is me, and I note that the Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives,” she said.
She also told the WSJ that inflation isn’t likely to be a problem, and the Fed can handle it if it does become an issue, helping to ease some of the concerns harbored by market participants that borrowing costs were likely to shoot higher soon.
Even though Yellen doesn’t control interest rate policy as the Treasury Secretary, her former role as the head of the central bank and her close ties with Fed Chairman Jerome Powell resulted in a more pronounced response by investors, some analysts said.
“However, the very thought of a Fed policy turnaround, albeit not from [the Federal Open Market Committee] members, continues to hurt markets,” said Alex Kuptsikevich, a senior market analyst at FxPro.
The Fed members and Powell have been mostly emphasizing a go-slow approach to raising rates and normalizing monetary policy.
Neil Wilson, chief market analyst at Markets.com said that Yellen’s comments were seen as “a significant remark since it is a break with the Fed’s new policy stance.”
Analysts also pointed out that the equity market is trading near records and has been vulnerable to a pullback after a period of sustained gains in the aftermath of the public health crisis.
“Big tech has obviously been under a microscope for quite some time now. And with relatively high valuations, it’s not surprising to see investors looking for opportunities elsewhere,” Loewengart told MarketWatch.
“So with inflation fears reemerging, tech continues to have the potential to take the brunt of those jitters,” he said.
A number of other Fed speakers are also on deck on Wednesday: Chicago Fed President Charles Evans will open a conference on ‘how to help Chicago’s youth’ at 3 p.m. Eastern. Boston Fed President Eric Rosengren is set to speak at 11 a.m., while, Cleveland Fed President Loretta Mester will speak to the Boston Economic Club at noon.
On the public health front, President Joe Biden on Tuesday announced a new goal of getting 70% of U.S. adults vaccinated with at least one COVID-19 vaccine dose by the Fourth of July, along with having 160 million adults fully vaccinated by that holiday.
Which companies are in focus?
- Shares of Lumber Liquidators Holdings Inc. LL were off 14% Wednesday, after the wood flooring retailer reported first-quarter profit that beat expectations but sales that came up short, as results continued to be impacted by tariffs on certain products imported from China.
- Hilton Worldwide Holdings Inc. shares HLT slid 2.5% Wednesday, after the hotel chain’s earnings fell short of estimates, as the coronavirus pandemic continued to weigh on demand in January and February.
- Shares of Fresh Del Monte Produce Inc. FDP rose 14% in premarket trading Wednesday, after the fresh fruit and vegetables producer reported a first-quarter profit that more than tripled from a year ago, even as sales slipped given continued COVID-19 restrictions on food service customers and given hurricane-related supply disruptions.
- Shares of AmerisourceBergen Corp. ABC fell 7% Wednesday, after the pharmaceuticals and healthcare products company reported a first-quarter profit that beat expectations but revenue that came up a bit light.
- Shares of ODP Corp. ODP rose 8.5% Wednesday after the office supply retailer announced plans to separate into two independent, publicly traded companies.
- New York Times Co. shares NYT declined 2.4% Wednesday, after the newspaper group beat earnings estimates for the first quarter and offered upbeat guidance for the second quarter.
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Facebook’s
FB,
+0.17%
oversight board upheld the company’s decision to restrict former President Donald Trump’s access to Facebook and Instagram on Wednesday, but said that the company must clarify whether it intends the penalty to be permanent or temporary. Shares were little-changed. - Shares of Peloton Interactive Inc. PTON took a 8.4% dive in morning trading Wednesday, reversing an earlier intraday gain of as much as 2.2%, after the at-home-fitness company said it was voluntarily recalling about 125,000 Tread+ treadmills, citing “risk of injury or death.”
How are other markets faring?
- In Europe, the Stoxx Europe 600 SXXP was up 1.5%, recovering some of its decline from Tuesday, while London’s FTSE 100 UKX, was trading 1.3%.
- The 10-year Treasury note yield TMUBMUSD10Y added 2,8 basis points to 1.62%.
- The greenback was little-changed, trading at around 91.283, based on the ICE U.S. Dollar Index DXY.
- Gold futures GC00 fell $5.80, or 0.3%, to trade at $1,770.10 an ounce on Comex. U.S. crude futures CL.1 rose 79 cents, or 1.2%, at $66.47 a barrel on the New York Mercantile Exchange, heading for a third straight gain.
- In Asian trade, Hong Kong’s Hang Seng Index HSI fell 0.6%. Bourses in Shanghai and Tokyo were closed.
