By Christine Idzelis and William Watts
U.S. stock benchmarks ended lower Tuesday, booking back-to-back losses for the first time this month, after data showing another jump in wholesale inflation and ahead of a Federal Reserve policy statement on Wednesday that is expected to see a faster reduction in its bond buying program.
How did stock indexes trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.04% fell 106.77 points, or 0.3%, to close at 35,544.18.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.19% slipped 34.88 points, or 0.8%, to finish at 4,634.09.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.59% dropped 175.64 points, or 1.1%, to end at 15,237.64.
All three major benchmarks saw a second straight day of losses.
On Monday , the Dow fell by about 320 points, or 0.9%, to 35,650.95, the lowest closing value since Dec. 6, while the S&P 500 and Nasdaq Composite also lost ground.
What drove the markets?
Further evidence of inflation rising helped to spark a fresh bout of selling on Wall Street, with all three major stock indexes falling after the U.S. government released data showing wholesale prices increased again.
The producer-price index rose 0.8% in November, above the 0.5% advance forecast by economists polled by The Wall Street Journal. That brought wholesale prices in the past year to 9.6%, from a 12-month pace of 8.8% in the prior month, marking the highest level in about four decades.
The PPI report is another “reminder that we do have to keep a close eye on inflationary pressures,” said Larry Adam, chief investment officer at Raymond James, in a phone interview Tuesday. “The market is focused like a laser” on the outcome of the Fed’s Wednesday update, he said, with “a little bit of concern” over the path that the central bank could take to combat inflation.
Investors expect Fed policy makers to announce a faster pace of tapering of its bond purchases due to higher inflation. Particular attention will be paid to the Fed’s latest economic projections and its interest-rate expectations, laid out in the so-called dot plot.
“Front-end interest rates are pricing just under three rate hikes in 2022 — which would seemingly reflect an expectation that tapering of asset purchases is accelerated and that Fed ‘dots’ will drift higher at Wednesday’s meeting,” said a team of Citi strategists led by Andrew Hollenhorst.
“However, equity prices at all-time highs and long-term real interest rates close to historic lows suggest the market continues to price a relatively benign scenario where inflation returns to target without significantly more restrictive monetary policy,” the analysts said in a note to clients.
Raymond James CIO Adam told MarketWatch that “the market can absorb a few” rate hikes in 2022 and that he expects the S&P 500 may rise to 5,050 next year. Adam said that he’s favoring cyclical bets in areas such as consumer discretionary, financials, industrials and energy, and that he also likes “megatech” companies that are diversified and have strong earnings.
Treasury yields rose modestly after the release of the PPI data, providing a lift to financial shares, while weighing on technology and other growth-oriented sectors.