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Aug. 8, 2022, 4:33 p.m. EDT

Dow ekes out gain as stocks end mostly lower, with investors awaiting next U.S. inflation report

By Vivien Lou Chen and William Watts

The S&P 500 and Nasdaq Composite indexes failed to hold onto earlier gains on Monday, while the Dow Jones Industrial Average finished slightly higher, as investors await this week’s consumer-price index report for July, which could lead to expectations for further Fed tightening.

What happened

  • The Dow Jones Industrial Average (DOW:DJIA) finished up by 29.07 points, or 0.1%, at 32,832.54 after paring an earlier gain of 306.49 points.

  • The S&P 500 (S&P:SPX) closed down by 5.13 points, or 0.1%, at 4,140.06. The index finished down for its third straight session.

  • The Nasdaq Composite (NASDAQ:COMP) finished down by 13.10 points, or 0.1%, at 12,644.46.

The Dow fell 0.1% last week, while the S&P 500 ticked up 0.4%, and the Nasdaq Composite advanced 2.2%. The S&P 500 is up for three consecutive weeks, but remains down 13.1% for the year to date.

What drove markets

Stocks struggled to hold onto earlier gains after all three major stock indexes initially opened higher on Monday, with investors gauging whether recent pessimism over corporate prospects has been overdone.

Read: A surging stock market is on the verge of signaling a ‘huge’ move — but there’s a catch

Traders also were hoping that a robust labor market would challenge recent evidence of a slowing U.S. economy, while a generally well-received second-quarter company earnings season comes to a close. But last week’s strong jobs report for July makes it more difficult for investors to entertain the idea that the Fed will relent on its rate-hike plans anytime soon, according to Morgan Stanley equity strategist Michael Wilson. “The strong labor report on Friday suggests companies have yet to cut labor in an effort to protect margins while simultaneously delaying any Fed pivot,” Wilson wrote in a note. The market now faces some technical challenges heading into Wednesday’s consumer-price index report for July, according to some observers — with 4,200 seen as a key resistance level for the S&P 500.

See: Suddenly, stock-market investors are wrestling with ‘boomflation’ after hot July jobs report and Why the S&P 500’s ‘bounce within a bear market’ could fizzle before it hits 4,200

“For investors, economic and policy uncertainty translating into continued trade in the S&P 500 below 4,200 and 4,340 leaves open the possibility of lower lows,” said analysts at Evercore ISI.The S&P 500 has bounced almost 13% from its 52-week low of 3,666.77 reached on June 16, as investors gained confidence that Federal Reserve policy makers will ultimately get a handle on inflation. Inflation-derivatives traders have been expecting a string of roughly 8.8% annual headline U.S. consumer-price readings over the next three months, starting with Wednesday’s release of July’s data.“The equity market has come a long way in a very short time,” Don Townswick, director of equity strategies for Conning, wrote in an email to MarketWatch.“Aggressive Fed action seems to have instilled a general belief that inflation will be controlled without driving the U.S. into a deep recession,” Townswick said. “Our belief is that that viewpoint may be a tad optimistic, and that some retrenchment here would probably makes sense, like the pullback we’ve seen today. Recent technology revenue warnings just reinforce this point.”

Investors were also assessing the implications of a massive healthcare, climate and tax package that passed the Senate on a party-line vote Sunday, handing President Joe Biden a political victory. The package is expected to win approval in the Democratic-controlled House.

It includes an extension of a tax credit for the purchase of electric vehicles. Shares of Tesla Inc. (NAS:TSLA) finished up by 0.8%.“We started out strong partly because of the momentum from environmental stocks that benefited from the tax bill over the weekend,” said Jay Hatfield, founder, chief executive and portfolio manager at Infrastructure Capital Advisors. “And then we stalled out around a resistance point around 4,180. Now, everyone is waiting for CPI, and we’re going to be in a pretty tight trading range until Wednesday,” Hatfield said via phone.

Earnings season, which has so far been characterized as not as bad as feared, is moving into the home stretch. Some 435 members of the S&P 500 had reported second-quarter results as of Friday morning, and year-over-year growth in the blended estimate for earnings per share, which includes reported results and estimates of still-to-be-reported results, stands at 6.8%, according to FactSet. That’s up from an estimate of 5.6% as of March 31.

Also read: 5 things we’ve learned from earnings season so far: How big an impact is inflation having?

Supporting the market mood is a calmer tone in sovereign bonds, with the U.S. 10-year Treasury yield (XTUP:BX:TMUBMUSD10Y) , which had jumped on Friday following the jobs data, easing 7.5 basis points to 2.76%.

Companies in focus

  • Shares of AMC Entertainment Holdings Inc. (NYS:AMC) finished up by 8%. The shares have rallied since the movie theater operator announced last week that it will issue a special “APE” dividend, in the form of AMC Preferred Equity Units that will trade on the New York Stock Exchange.

  • Fellow meme-stock favorite GameStop Corp. (NYS:GME) closed 8.5% higher.

  • Nvidia Corp. (NAS:NVDA) shares finished down by 6.3% after the semiconductor company disclosed that it expects to fall well short of revenue expectations for its latest quarter, largely due to gaming weakness.

  • Class A shares of Warren Buffett’s Berkshire Hathaway Inc. (NYS:BRK.A) ended down by less than 0.1% after the company reported a $43.76 billion loss in the second quarter on Saturday as the paper value of its investments plummeted. Berkshire’s operating earnings, which exclude some investment results, rose to $9.28 billion from $6.69 billion a year earlier. Buffett has said operating earnings are his preferred gauge for measuring performance.

  • Palantir Technologies Inc. (NYS:PLTR) shares finished down by 14.2% after the software company posted a surprise adjusted loss on a per-share basis and delivered revenue guidance that fell short of the consensus view.

How other assets fared

  • The ICE Dollar index (IFUS:DXY) fell 0.2%.

  • Bitcoin (COINDESK:BTCUSD) advanced 2.8% to around $23,916.

  • Oil futures ended higher, with West Texas Intermediate crude for September delivery rising $1.75, or 2%, to close at $90.76 a barrel on the New York Mercantile Exchange. Gold futures ended up 0.8%, settling at $1,805.20 an ounce.

  • Asia markets posted a mixed finish after another COVID-19 lockdown in a part of China impacted sentiment. Hong Kong’s Hang Seng (HONG:HK:HSI) closed down by 0.8%, while Japan’s Nikkei 225 (NIKKEI:JP:NIK) finished up by 0.3%.

  • In Europe, the Stoxx 600 (STOXX:XX:SXXP) finished 0.7% higher, while London’s FTSE 100 (FTSE:UK:UKX) gained 0.6%.

Jamie Chisholm contributed to this article.

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