The stock market has been in a bit of turmoil this week. The Dow Jones Industrial Average saw its worst day since December, and the S&P 500 is down 2% on the week. Investors are worried about inflation and energy prices, which have been driving up costs for consumers.
The is inflation good for stocks is a question that has been asked many times. There are mixed opinions on this topic, but the general consensus is that it depends on the type of inflation.
Rising oil costs increased inflation fears, while persistent concerns about China’s housing sector impacted on mood in the United States.
S&P 500 futures rose 0.1 percent on Tuesday, a day after the broad index was dragged down by worries about slowing GDP and inflation. The blue-chip Dow Jones Industrial Average gained 0.1 percent in futures trading, while the technology-heavy Nasdaq-100 gained 0.2 percent.
In recent weeks, turbulent trading has pulled stock indices down. Investors are dealing with an energy shortage that threatens to exacerbate inflationary pressures, just as indications of global economic slowdown appear.
Concerns about China’s ailing real estate market persist. Fantasia’s board of directors resigned two days after the business failed to fulfill a $206 million bond payment. Its woes add to concerns that China’s property woes go beyond Evergrande, whose inability to make debt payments prompted fears of a new economic drag on the world’s second-largest economy.
The rise in oil prices has continuing. The U.S. oil benchmark, West Texas Intermediate, rose 0.2 percent to $80.83 a barrel on Tuesday, its highest level since 2014. Brent oil gained 0.4 percent to $83.92 per barrel, the worldwide standard. Crude prices have been steadily rising in recent weeks, owing to a global natural gas scarcity.
Investors will be watching the third-quarter earnings season, which starts this week, for indications on how businesses are handling pricing hikes. JPMorgan Chase and BlackRock, two of the country’s largest banks, are scheduled to kick off the reporting season on Wednesday.
“The major issue will be inflation,” said Brian O’Reilly, director of market strategy at Mediolanum International Funds. “There is some genuine worry about a winter of discontent.” “If businesses don’t communicate well about their cost constraints, we may see some volatility.”
Investors are also anticipating the release of the International Monetary Fund’s global economic outlook report on Tuesday, which could provide insight into the slow post-pandemic recovery. At 10 a.m. ET, the United States will release statistics on job vacancies and labor turnover.
The 10-year Treasury note yield increased to 1.612 percent on Tuesday, up from 1.604 percent on Friday. The bond markets in the United States were closed on Monday due to a federal holiday. Since the Federal Reserve indicated last month that it might start reducing its asset purchases as soon as November, yields have been rising.
Overseas, the Stoxx Europe 600 index dropped 0.1 percent on Tuesday, with automotive and mining firms leading the way.
Stock markets in Asia were mostly down. The Nikkei 225 index in Japan dropped 0.9 percent, while the Hang Seng Index in Hong Kong plummeted 1.4 percent. The Shanghai Composite Index dropped 1.3 percent in mainland China.
Markets have been plagued by concerns about inflation and sluggish growth in recent weeks.
Reuters photo/Brendan McDermid
Will Horner can be reached at [email protected]
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