Inflation Looms

By Nicholas Jasinski |  Tuesday, May 4 Tech Wreck. A rout in technology shares dragged the Nasdaq Composite to its worst day since March, while the Dow Jones Industrial Average staged a gradual, day-long comeback to eke out a narrow gain. Stocks continued to shrug off strong earnings reports, as investors look ahead to Friday’s payrolls report. The Dow closed up 20 points, or less than 0.1%, after being down nearly 350 points at its late-morning lows. The S&P 500 fell 0.7% and the Nasdaq declined 1.9%, both off their worst levels of the day. Technology shares bore the brunt of the declines today, with the S&P 500 tech sector losing 1.8%. Other growth-oriented areas of the market like communication services and consumer discretionary both lost about 1%. More cyclical sectors like energy, industrials, financials, and materials, meanwhile, closed in positive territory. Chip makers and semiconductor-related companies were among the biggest losers, with the iShares PHLX Semiconductor ETF closing down 1.7%. Big Tech shares were also hard hit: Apple lost 3.5%, Amazon.com fell 2.2%, and Microsoft declined 1.6%. Earnings season continued today, with 45 S&P 500 companies scheduled to report. Some 88% of index members have reported first-quarter results ahead of Wall Street estimates, per data from Credit Suisse strategists. Add that to a global vaccine rollout under way and an economy that continues to recover, and there’s plenty for investors to be excited about. But with stock indexes at or near record highs and coming off a massive rally in the past year, there’s a lot of good news already priced in. On the other hand, companies continue to mention higher input costs and supply chain bottlenecks, while investors monitor the Federal Reserve for any sign of a policy change as the inflation debate rages on (more on that below). April U.S. jobs numbers are due Friday. They'll provide the latest datapoint about the economic rebound. The consensus estimate is for an increase of 975,000 nonfarm payrolls, which would follow a 916,000 gain in March. But the so-called “whisper number” on Wall Street is well above a million jobs. The concern is that could put the release into good-news-is-bad-news territory, with the ahead-of-schedule recovery prompting the Fed to taper asset purchases sooner than markets are currently expecting. All of that’s keeping a lid on the market’s enthusiasm this week, even perhaps encouraging some profit-taking by technology investors.

 

DJIA: +0.06% to 34,133.03 S&P 500: -0.67% to 4,164.66 Nasdaq: -1.88% to 13,633.50 The Hot Stock: Gartner +14.2% The Biggest Loser: IPG Photonics -10.4% Best Sector: Materials +1.1% Worst Sector: Technology -1.8%