Dow ends flat, S&P 500 and Nasdaq snap three-session slip after Federal Reserve minutes point to impending winding down plans

US stocks largely closed higher on Wednesday after minutes of the Federal Reserve’s latest policy meeting reinforced expectations that the central bank will begin phasing out its $120 billion a month in bond purchases before the end of the year.

How did stock indices perform?
  • The Dow Jones Industrial Average DJIA,
    fell less than a point to finish flat at 34,377.81, but extended his losing streak to a fourth day in a row.

  • The S&P 500 SPX,
    rose 13.15 points, or 0.3%, to end at 4,363.80.

  • The Nasdaq Composite Index COMP,
    climbed 105.71 points or 0.7% to close at 14,571.64.

On Tuesday, all three major indices fell, extending a losing streak into a third session.

What drove the market?

The blue-chip Dow made gains in a three-session slip after minutes from the Federal Reserve meeting in September showed that the central bank could begin phasing out its emergency buying as early as November or December, a sign that the US economy has significantly recovered from the worst shocks of the pandemic.

Several Fed officials said they even favored a faster cut in the current pace of the central bank’s monthly purchases of $120 billion in Treasury bills and mortgage-backed securities, rather than the proposed $15 billion cut.

But government bond yields were also lower, putting pressure on stocks of banks that benefit from higher interest rates, while tech stocks got a boost. The 10-year Treasury bill TMUBMUSD10Y,
fell to 1.549% as investors analyzed third-quarter corporate earnings in the US as concerns about supply chain problems and labor shortages threaten to dent corporate earnings.

Wayne Wicker, Chief Investment Officer at MissionSquare Retirement, said in a telephone interview.

“That’s why you see people doubting now. You have mixed messages about whether the economy has seen peak earnings and whether inflation will eat away at margins and profits will fall,” he said.

“Stock selection is going to be a more important ingredient in the fourth quarter because not everything goes straight up.”

Wall Street weighed in on a closely watched reading on inflation, which came in higher than expected.

Data showed the US consumer price index rose 0.4% in September, after rising 0.3% in August, the Labor Department said Wednesday. In the 12 months to September, the CPI rose 5.4% after a 5.3% year-on-year increase in August.

See: Stronger-than-expected US inflation data means bond traders are weighing the risk of a Fed policy error

Excluding the volatile food and energy components, the CPI climbed 0.2% after rising 0.1% in August, the smallest increase in six months. The so-called core CPI rose 4.0% year-over-year after rising 4.0% in August.

Higher prices for food, gasoline and rent accounted for most of the advance. Economists polled by The Wall Street Journal had forecast a 03% rise in CPI.

“Wednesday’s still-elevated consumer price index marks about six months of hot inflation data, suggesting that inflation isn’t as temporary as many investors had previously anticipated,” Nancy Davis, founder of Quadratic Capital Management, wrote in email responses on Wednesday.

Companies have increasingly reported the impact of price pressures on earnings updates, and investors have eagerly listened to advice from C-suite executives on the inflation outlook.

JPMorgan Chase
the results beat Wall Street’s earnings per share predictions as it released an additional $2.1 billion in loan loss reserves. However, the stock fell by 2.6%.

On the other hand, if other major banks release loan loss reserves, that’s a bullish sign for the health of the US economy, Wicker said.

“I think the pattern indicating the coast is pretty clear,” he said. “We really haven’t experienced the kind of credit losses that we had to prepare for a year and a half ago.”

Read: Will the wild rally in banking stocks continue? Here are the numbers to look at in this week’s earnings

Analysts expect S&P 500 index gains to rise 27.6% annually, a significantly slower pace than gains of 52.8% in the first quarter and 92.4% in the second quarter, both of which benefited from favorable comparisons with the onset of the COVID-19 pandemic last year. Bank of America has warned that corporate guidance can be ugly amid a make or break quarter.

Opinion: Beating the market would still be hard even if you knew the earnings of the S&P 500 before everyone else

Despite Wednesday’s inflation data, Davis said Fed officials are unlikely to change their views on tapering, and it is likely to end purchases by mid-2022 as it gears up to eventually normalize interest rates.

“The Fed is expected to announce all of its winding down plans and the central bank probably wants to keep the optionality with their walking cycle,” Quadratic’s Davis said.

Which companies were central?
  • Shares of tech giant Apple AAPL fell 0.4% after Bloomberg reported late Tuesday that the tech giant will cut production of iPhone 13 due to a global chip shortage.

  • Shares of Qualcomm Inc.
    rose 1.7% after the chipmaker said its board approved $10 billion in share buybacks.

  • Shares of Delta Air Lines Inc.
    slipped 5.8% after the airline reported its first adjusted profit since the COVID-19 pandemic, but said the recent rise in fuel prices will put pressure on its ability to remain profitable in the fourth quarter.

  • black rock BLK shares rose 3.8% after the investment giant reported better earnings and revenue expectations, and more than 20% growth in assets under management.

How did other assets trade?
  • The ICE US Dollar Index DXY,
    a measure of the currency against a basket of six major rivals, fell 0.5%.

  • US oil futures lost steam, with the benchmark CL00,
    closed 0.3% to settle at $80.44 a barrel. gold futures GC00,
    closed 2% higher to settle at $1,794.70 an ounce.

  • The Stoxx Europe 600 SXXP,
    closed 0.7% higher, while London’s FTSE 100 UKX,
    0.2% won.

  • The Shanghai Composite SHCOMP,
    rose 0.4%, while Japan’s Nikkei 225 NIK,
    0.3% lost.

Barbara Kollmeyer contributed to reporting