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Friday, October 22, 2021

Stock futures drop as investors await bank earnings, inflation data

Stock futures opened slightly lower Tuesday evening as investors awaited a host of new earnings and inflation data, which will help show the extent to which rising prices have weighed on the economic recovery and corporate profits. 

Third-quarter earnings season is set to pick up on Wednesday, with notable companies including JPMorgan Chase (JPM), BlackRock (BLK) and Delta Air Lines (DAL) poised to report results before market open. 

Investors have been trimming their outlooks for S&P 500 earnings growth for the third quarter, given that rising input prices, higher labor costs and other supply-side headwinds likely weighed on margins and chipped away at profitability. 

Recent developments for a plethora of companies across industries have already reflected the impacts of supply chain shortages and shipping challenges. The Wall Street Journal reported that firms from Costco (COST) to Walmart (WMT) have resorted to chartering their own ships to import goods ahead of the holiday season. And Bloomberg reported Tuesday that Apple (AAPL) was set to cut its iPhone production targets for this year by as many as 10 million units due to ongoing chip shortages. 

The latest batch of economic data due Wednesday is likely to confirm that these supply and demand mismatches translated to ongoing inflationary pressures at the start of the fall. In the Labor Department’s Consumer Price Index due out Wednesday morning, consensus economists expect to see core prices, excluding food and energy, rise by 4.0% in September over last year, coming down only slightly from June’s 30-year high of 4.5%. 

Wall Street analysts are looking for third-quarter earnings growth of about 27% on a year-over-year basis, according to FactSet data. Though this would still be the third-fastest earnings growth rate since 2010, it would be a marked slowdown from the second quarter’s nearly 90% pace. 

Savita Subramanian, Bank of America’s head of U.S. equity and quantitative strategy, wrote in a note this week that this “will be a make-or-break quarter with all eyes on margins and supply chains. 

Other strategists agreed. 

“We think investors should fasten their seatbelts because this is going to be one rocky earnings season,” Wall Street Alliance Group’s Aadil Zaman told Yahoo Finance Live on Tuesday. “Supply chain issues are going to be dominating the earnings, and some companies, we are going to see, are going to give us an early Halloween shock.”

However, given that issues around materials shortages, port congestion and labor scarcities have already been well-known among investors, traders should focus more closely on company commentary and outlooks as a signal of future resilience, some pundits noted.  

“The message that I’m giving to our investors is focus not necessarily on what the third-quarter print is, but more importantly focus on what companies are saying about visibility going forward,” John Lynch, chief investment officer for Comerica Wealth Management, told Yahoo Finance Live. “And we think that we’re going to see good visibility from some of the value and cyclical players going forward.”

6:10 p.m. ET Tuesday: Stock futures edge lower

Here’s where markets were trading Tuesday evening:

  • S&P 500 futures (ES=F): -11 points (-0.25%), to 4,329.75

  • Dow futures (YM=F): -51 points (-0.15%), to 34,209.00

  • Nasdaq futures (NQ=F): -54.5 points (-0.37%) to 14,595.75

NEW YORK, NEW YORK – SEPTEMBER 30: Traders work on the floor of the New York Stock Exchange (NYSE) on September 30, 2021 in New York City. In afternoon trading the Dow was down over 250 points as investors continue to worry about inflation, wages and supply chain issues. (Photo by Spencer Platt/Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter

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