U.S. stocks extended losses on Tuesday as investors weighed earnings and braced for a series of key inflation reports due out later this week.
The S&P 500 fell 0.5%, while the Dow Jones Industrial Average fell about 0.1%. The tech-heavy Nasdaq fell 1.5% as warnings from Micron Technology (MU) weighed on chip and tech stocks.
Micron shares fell 5% after the memory chipmaker said its fourth-quarter revenue could be at or below the lower end of a guidance range provided in the earnings call of the company on June 30.
Micron’s announcement comes a day after its chip industry counterpart Nvidia (NVDA) reported that its second-quarter revenue would fall 19% from the prior quarter as the gaming business was more broadly impacted by lower consumer purchases of discretionary items such as laptops and video. game consoles.
Morgan Stanley chief investment officer Michael J. Wilson and Goldman Sachs chief U.S. equity strategist David J. Kostin warned in separate notes earlier this week that corporate profit margins are set to shrink l next year as businesses face severe cost pressures.
“As end-consumer prices continue to rise at a rapid rate, producer prices are rising at double the rate,” Wilson wrote in a note on Monday, adding that some analyst estimates of higher margins in 2023 are “unrealistic due to rigidity”. cost pressures and falling demand.
Of the nearly 90% of S&P 500 companies reporting in the second quarter, companies that reported negative earnings surprises saw no price change on average two days before the earnings release until two days after the earnings release, compared to the five-year average price decline of 2.4% during that same window for companies reporting negative earnings surprises, according to data from FactSet research.
“The market did not punish S&P 500 companies that reported negative EPS surprises on average,” said John Butters, senior earnings analyst at FactSet.
This reality echoes the sentiment of Wilson and Kostin, who flagged skepticism around the recent rally and indicated that markets are at odds with the earnings outlook.
The earnings of companies such as Coinbase (COIN) and (RBLX) will be closely watched after the market closes.
Investors are eagerly awaiting the Consumer Price Index (CPI) for July due out on Wednesday,
The headline reading should reflect a slight moderation last month from the previous print, mainly helped by lower gasoline prices. The figure, however, is still expected to show inflation climbing at the fastest pace in four decades. Economists polled by Bloomberg predict that the broadest measure of the CPI rose 8.7% a year in July.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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