Text size

Investors will focus on inflation data Tuesday against a backdrop of the Federal Reserve considering the end of its Covid-19 pandemic-era programs.

Daniel Slim/AFP via Getty Images

The

Dow Jones Industrial Average

was falling on Tuesday after the release of key U.S. inflation data that could signal problems ahead for corporate profits.

The Dow had dropped 243 points, or 0.7%, while the

S&P 500

was down 0.4%, and the

Nasdaq Composite

was off 0.2%. All three indexes had been higher at the market open. The S&P 500 is on pace to close below its opening level for its sixth consecutive trading session, something that last happened in February 2020. The 10-year Treasury yield slipped to 1.28% from 1.34%.

A weaker-than-expected consumer-price index looked like it might provide some relief for markets, which were higher immediately after the release. CPI increased 0.3% month over month in August, while core CPI rose 0.1%. Expectations were for CPI to rise 0.4% in August, down from 0.5% in July. Compared with the same period last year, inflation rose 5.3%.

A major driver of Tuesday’s selling was that the lower-than-expected inflation reading masked a highly inflationary picture. Not only was the result only slightly below expectations, but airfares and hotel prices were down 9.1% and 3.3% month over month, respectively. That’s partly because Covid-19 infections spread at a fast clip this summer, indicating those prices can strengthen in coming months, wrote Andrew Hollenshorst, Citigroup economist. 

“We continue to see signs that inflationary pressure will be more persistent than Fed officials or markets expect,” said Hollenhorst. 

Also problematic: The producer price index, or PPI, is rising faster than CPI, which suggests that companies haven’t been able to pass on all their higher costs to consumers. “[Economists] saw trouble for US companies’ margins, mainly because the rise in producer prices was not passed onto the consumer,” writes Oanda’s Edward Moya.

Companies such as

3M

(MMM) and

Sherwin-Williams

(SHW) have offered disappointing guidance recently because of higher input costs, and those cuts are now showing up in earnings revisions. Wall Street estimates for third-quarter earnings per share fell to $49.23 a share for the week ended Sept. 10, from $49.30 a share, according to DataTrek’s Nicholas Colas. “[We] still think it’s a good idea to lighten up on equity exposure right here,” he writes. “At current valuations (S&P 500 at 20.3x 2022 earnings) US equities need the tailwind of rising earnings expectations as well as eventual earnings beats.”

Now that might be scary.

In commodity markets, oil prices moved higher as the crude rally continued. International benchmark Brent crude futures were changing hands around $74 a barrel, while futures for the U.S. benchmark, West Texas Intermediate, neared $71 a barrel.

Here are 10 stocks on the move Tuesday:

Luxury-goods stocks like

LVMH,

Burberry,

Kering,

and

Richemont

were all lower, as analysts noted concerns over rising Covid-19 cases in Asia. Consumers in China, Japan, and other countries in the region are critical to these companies’ sales and growth. LVMH was down 1.4% in London, Burberry down 1.8% in London, Kering down 3.5% in Paris, and Richemont down 1.9% in London.

Apple

(ticker: AAPL) stock was up 0.5% ahead of the launch event for the newest iPhones.

Oracle

(ORCL) stock was falling 3.6% after reporting a profit of $1.03 a share, beating estimates of 97 cents a share, on sales of 9.73 billion, below expectations for $9.77 billion. Barron’s Eric Savitz wrote that the company guided for higher quarterly earnings per share than analysts had expected. 

Herbalife Nutrition

(HLF) stock dropped 16.7% after the company said its third quarter and full year sales and profits will come in lower than initially expected. The company still expects 21% sales growth over the same quarter in 2019 and lowered its full year earnings per share guidance to $4.75 from $4.90.

Boeing

(BA) stock slipped 1.1% after the company said the commercial airplanes and services businesses are recovering from their pandemic disruptions. 

CureVac N.V.

(CVAC) stock fell 4.9% after the company announced it is terminating a part of its manufacturing process for its Covid-19 vaccine. 

Coinbase

(COIN) stock was 1.1% higher after Piper Sandler called selling in the stock “overdone.” The stock fell more than 2% Monday after announcing a $1.5 billion bond sale.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

Read More