Stocks End Lower After Early Gains
2:18 pm Wednesday, October 12th, 2022
US stocks posted modest fall as investors weigh prospects for earnings growth while the latest inflation readings keep pressure on the Federal Reserve to tighten policy. UK markets were roiled once again by confusion over the country’s policies.u
Major indices opened to modest losses but recovered quickly from those levels after the S&P 500 tested, and found support at, yesterday’s low (3568.45). One could argue the market is exhibiting impressive resilience today following the hotter-than-expected September PPI report this morning. PPI was up 8.5% year-over-year while core PPI, which excludes food and energy, was up 7.2% year-over-year indicating inflation remains “sticky” at the wholesale level.
The Treasury market did not have an outsized reaction to the report, and that has helped calm investors’ nerves. The 10-yr note yield is down three basis points to 3.91% and the 2-yr note yield is unchanged at 4.30%.
Other factors supporting the equity market include strength in Apple (AAPL), a nice gain in PepsiCo (PEP) after it posted better-than-expected earnings and raised its FY22 EPS guidance, and a belief that the stock market is due for a bounce following a 5.3% decline over the course of five straight, losing sessions.
The outsized gains in PepsiCo are boosting the S&P 500 consumer staples sector (+1.0%) to the top of the leaderboard today. Energy (+0.8%) is another top performer despite a sharp drop in oil prices. WTI crude oil futures, which reached $90.07 earlier, fell to $86.85/bbl on festering concerns about a global growth slowdown.
Weekly MBA Mortgage Applications Index fell 2.0% compared to last week’s 14.2% decline.
PPI rose 0.4% in September (consensus 0.2%) following a revised 0.2% decline in August (from 0.1%). Core PPI, excluding foods and energy, rose 0.3% in September (consensus 0.3%) following a revised 0.3% increase in August (from 0.4%)
The key takeaway from the report is that it shows producer inflation sticking at levels that will pressure profit margins and stoke concerns about negative pass-through effects to the consumer. In turn, that understanding will stoke concerns that there hasn’t been enough improvement on the inflation front to convince the Fed to take a more guarded approach with its rate hikes.
