U.S. stock markets opened moderately lower on Tuesday but were comfortably off the premarket lows that they hit in response another set of stronger-than-expected inflation data.
The annual rate of consumer inflation rose to 5.4% in June, defying expectations for a decline to 4.9%. The monthly rises in both the consumer price index and its narrower, ‘core’ definition also both outstripped expectations.
The data revived fears that the Federal Reserve will soon start to withdraw the monetary stimulus that has driven the rally of the last 18 months.
Earlier on Tuesday, The Wall Street Journal had published an interview with St. Louis Fed President James Bullard, in which Bullard said the time was already right for reducing the Fed’s asset purchases, which are currently running at $120 billion a month. Two of his colleagues on the Federal Open Markets Committee had argued the opposite over the last four days, and many analysts remain persuaded that the spike in prices is essentially transitory, distorted by factors such as the used car market and last year’s collapse in energy prices.
The number was “warmer than expected, but we knew risks were tilted to upside,” said Oxford Economics analyst Greg Daco via Twitter. He added that the May number “represents peak inflation”.
Others argued that the increase in prices appeared more broad-based than in the past.
“Apparel prices are jumping as consumers snap up everything that comes in,” said Diane Swonk of Grant Thornton. “Makeup is also in short supply. Masks are off and lipstick is on.”
The second-quarter earnings season got off to a mixed start, with JPMorgan (NYSE:JPM) stock falling 1.2% on concerns that its headline profit figure was flattered by the release of reserves made earlier in the pandemic. Goldman Sachs (NYSE:GS) stock, by contrast, rose 0.8% after riding a wave of merger and acquisition activity in the quarter, which offset a decline in trading revenue. PepsiCo (NASDAQ:PEP) stock rose 1.9% to a new record high after it raised its guidance for earnings growth in the current fiscal year to 11% from below 10% previously.
Also reporting were ConAgra Foods (NYSE:CAG), whose stock fell 2.2% after it warned of higher input price inflation, and construction goods company Fastenal (NASDAQ:FAST), which fell 2.2% after falling short of expectations.
Alphabet (NASDAQ:GOOGL)stock rose 0.2%, shrugging off overnight news that it had been fined nearly $600 million in France for failing to compensate publishers for carrying their news. The fine follows a similar action against Facebook (NASDAQ:FB) by Australia earlier this year that ended with the social media giant agreeing to pay publishers substantial fees in future.