Stocks drop to start busy week of earnings, inflation data

U.S. stocks extended a volatile trading streak on Monday as Wall Street headed into third-quarter earnings season and braced for a series of inflation reports.

The S&P 500 (^GSPC) fell 0.6% after opening higher, while the Dow Jones Industrial Average (^DJI) slipped 40 points, or 0.1%. The tech-heavy Nasdaq Composite (^IXIC) fell 1%.

The CBOE Volatility Index (^VIX), which measures near-term expectations for market turbulence, edged closer to the 33 level. And Treasury yields extended their recent ascent. Oil fell after jumping 17% last week, the biggest jump since Russia invaded Ukraine.

The moves come after an erratic week that started with a fierce rally and ended with a strong sell-off that wiped out much of the resulting gains. The latest decline was spurred by a strong jobs report in September which confirmed to investors that Federal Reserve officials are not expected to back away from tight monetary policy anytime soon.

The benchmark S&P 500 is down 23.6% year-to-date as of Friday’s close, but nine trading days account for that total decline of 32 total points, according to Nicholas Colas of DataTrek Research.

The largest share of down days have occurred around the Consumer Price Index (CPI) or Federal Reserve-related events, one was triggered by tensions between Russia and Ukraine, and two followed poor corporate earnings releases, he added. Over the coming week, all of these factors should test the US stock market.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 7, 2022. REUTERS/Brendan McDermid

Investors brace for the flurry of bank earnings that usually marks the start of a new earnings reporting period, with results from JPMorgan (JPM), Citi (C), Wells Fargo (WFC) and Morgan Stanley (MS) being all expected. . PepsiCo (PEP) and Delta Air Lines (DAL) were due to report this week.

Analysts are bracing for a painful earnings season as persistent inflation, rising interest rates and geopolitical headwinds weigh on corporate earnings.

“The bear market will not be over until the deterioration in the fundamental picture is fully discounted,” Morgan Stanley chief equity strategist Mike Wilson said in a note.

September’s consumer price data is also on Wall Street’s plate, one of the most important reports ahead of the upcoming FOMC policymaking meeting in November. As headline readings are expected to moderate again, all eyes will be on the “main” component of the report, which excludes the volatile food and energy categories. Economists polled by Bloomberg project that core CPI rose to 6.5% from 6.3% on the year, according to the latest estimates.

“Volatility will persist in equity and fixed income markets until there is a clear indication that inflation is under control,” said Peter Essele, head of portfolio management at Commonwealth. Financial Network, in a recent note.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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