By Christine Idzelis and William Watts
U.S. stocks closed lower Tuesday, after wavering between small gains and losses earlier in the trading session, as inflation worries appeared to weigh on sentiment ahead of the unofficial start of third-quarter earnings season.
How did major indexes trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.38% fell 117.72 points, or 0.3%, to close at 34,378.34.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.15% slipped by 10.54 points, or 0.2%, to finish at 4,350.65.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.02% declined 20.28 points, or 0.1%, to end at 14,465.92.
It was the third, straight day of losses for all three major indexes.
What drove the market?
With earnings season set to get under way on Wednesday, investors are worried that executives will report that supply-chain woes and inflation are chipping away at corporate profit, which could deliver a fresh hit to Wall Street sentiment.
“There’s a lot of consternation in the market right now circling around the growth outlook as it relates to the impact from higher energy prices” and bottlenecks in the global supply chain, said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, in a Tuesday phone interview.
“That filters right into the earnings season,” he said. “Everybody is sort of on pause waiting around to hear and see” from companies on how they’re faring amid higher costs and wages.
Earnings per share for S&P 500 constituents are forecast to grow 25% in the third quarter, according to S&P Global Market Intelligence. Second-quarter EPS grew a better-than-average 89%.
“Many companies that move or make things have been warning of profit pressures owing to rising input costs and supply chain related production shortfalls. This is reflected in prudent analyst consensus earnings per share estimates for the third quarter,” said David Bianco, chief investment officer for the Americas at DWS.
DWS still is forecasting a 4,400 level for the S&P 500 at the end of the year.
Investors will be attuned to how companies are digesting rising costs for labor and other inputs, but the hit to margins may end up being less than feared, Tom Plumb, portfolio manager of the Plumb Balanced Fund /zigman2/quotes/208164852/realtime PLBBX +0.06% , told MarketWatch.
“Historically, the best type of investment is when you get something that melds cyclical with secular changes,” he said. “The thing were going to continue to see is investment in productivity-enhancing software and equipment” and companies that will benefit will be those that succeed in taking “labor content out of their cost structure.”