Before The Bell
Volatility has returned to Wall Street this week, as inflation concerns prompt investors to engage in some overdue profit-taking.
The NASDAQ dropped a sizable 350 points, or 2.6%, on Monday and was down another 2.2% on Tuesday before closing with a modest 12-point dip.
The selling carried over into the Dow Jones Industrial Average in late trading Monday and again on Tuesday, when the Dow fell 474 points.
Elsewhere, the S&P 500 eased 36 points Tuesday after a 44-point pullback on Monday.
One reason for the selling was that markets have come a long way in a short period of time. The Dow and S&P 500 are still up 12.0% and 10.5%, year-to-date, respectively. Those would be respectable figures for an entire year.
The NASDAQ’s 3.9% gain this year is less impressive, with many big-name technology stocks having enjoyed a stellar 2020. The market has favored sectors, such as financials and energy, which offer better value, after having lagged during the early stages of the pandemic.
Stocks have been on the defensive, as well, on the thinking that inflation is on the rise. That could mean the Federal Reserve will have some catching up to do with respect to raising interest rates.
There are also concerns about the effect on the economy from the temporary closure of a major regional pipeline in the eastern United States. Some gas stations are running out of fuel. The pipeline is supposed to be fully restored soon, but the disruption in the meantime is a negative for business. Airline stocks were hurt on Tuesday over fuel concerns.
Investors are clearly reassessing the potential for as much to go right as has been the case in recent months. True, business conditions are bouncing back, and strongly in many areas, but that is factored into stock prices to a large degree.
Earnings season is winding down, too, after a stellar reporting period by companies overall. The next major wave of support from corporate profits is not due until July, leaving a bit of a vacuum.
The income tax filing deadline is also extended until May 17th this year, owing to the pandemic. Paying tax bills could be diverting some cash out of stocks.
Ahead of the opening bell this morning, inflation fears have come home to roost with a much higher-than-expected reading on consumer prices for April. Stock futures sold off when the data was released.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
