S&P 500 Loses Over 1% As Investors Brace For Shaky Earnings Season, Looming Inflation Report



Stocks fell on Monday as markets brace for the start of earnings season–with several major companies reporting quarterly results this week, as investors also remain nervous about the upcoming June inflation report and what it could mean for the economy.

Key Facts

Markets opened lower: The Dow Jones Industrial Average fell 0.6%, around 200 points, while the S&P 500 lost 0.7% and the tech-heavy Nasdaq Composite 0.8%.

Stocks are coming off of a rare winning week after a better-than-expected jobs report on Friday, though some experts believe the strong labor market will embolden the Federal Reserve to continue hiking rates aggressively as it looks to bring down inflation.

Recession fears continued to weigh on stocks, especially as the yield curve remains inverted: The 2-year Treasury yield traded at roughly 3.08% on Monday, staying slightly higher than the 10-year rate.

Markets also took a hit from negative Covid headlines out of China: Case numbers are rising—with Shanghai reporting its first case of the BA.5 subvariant, while Macau closed its casinos for the week.

Oil prices fell roughly 2% amid the renewed Covid fears in China, with U.S. benchmark trading at $103 per barrel, while international benchmark Brent crude is up to more than $105 per barrel.

Shares of Twitter, meanwhile, fell roughly 5% after Tesla billionaire Elon Musk said he is “terminating” his $44 billion deal to buy the social media company, even as the platform prepares to take legal action to enforce the merger agreement.

Crucial Quote:

“Stocks are kicking off the week for sale,” as “there’s trepidation ahead of earnings,” says Vital Knowledge founder Adam Crisafulli. Investors remain especially “nervous” about a hot consumer price index report due on Wednesday, with experts predicting inflation will surge higher than the 8.6% level reached in May.


What To Watch For:

Investors are bracing for a big week of earnings. Several notable companies are reporting quarterly results in the next few days, including Pepsi on Tuesday and Delta Air Lines on Wednesday. Major Wall Street banks are all set to report at the end of the week, which should give investors additional clues about the health of the economy. “Given the economy’s quick pivot from stellar growth late last year to the real possibility that we are currently in a mild recession means this earnings season will be watched very closely,” says Lindsey Bell, chief markets & money Strategist for Ally. “There’s been a rallying cry on Wall Street for earnings estimates to be reduced in a significant way to reflect the current operating environment and to match the first half price performance of the stock market.”

Further Reading:

Stocks Fall After U.S. Economy Adds Back 372,000 Jobs In June (Forbes)

Elon Musk ‘Terminating’ Deal To Buy Twitter—Platform Plans Legal Action (Forbes)

Federal Reserve Prepares More Big Rate Hikes Amid Risk That High Inflation Could ‘Become Entrenched’ (Forbes)

Oil Falls Below $100 Per Barrel For First Time Since May As ‘Strong Likelihood Of Recession’ Hurts Demand (Forbes)


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