Futures in the United States are lower today, while those in Europe are flat, following a 250-point drop in the Dow Jones Industrial Average. Investors are finding it difficult to dismiss concerns that inflation will likely last longer than expected, sparking fears of stagflation. The main drivers of rising consumer prices are supply chain constraints caused by the coronavirus pandemic, as well as an impending power crisis, both of which are expected to have a negative impact on economic recovery and corporate earnings. However, investors should keep in mind that the third quarter earnings season is about to begin and will most likely continue to be a key factor in market sentiment in the coming weeks.
In yesterday’s session, the Dow Jones Industrial Average dropped 0.72%, and the S&P 500 index fell 0.69%. The Nasdaq, the tech-savvy index, slumped 0.64%, and the Russell 2000, the small-cap index, shed 0.56%.
The big question on everyone’s mind is whether inflation is likely to be transitory or not. Despite the fact that major financial institutions continue to believe that rising consumer spending is likely to be temporary and are recommending buying the dip, policymakers have begun to consider a scenario in which inflation may be prolonged. A similar situation exists in the United Kingdom, where the Bank of England is considering raising its policy rate before the end of 2021 in response to the risk of rising inflation.
Investors are now eagerly awaiting data on retail sales and the U.S. consumer price index, which will help them forecast when the Fed is likely to begin tapering and raise interest rates. Investors should keep in mind, however, that the data may underperform, adding fuel to market uncertainty and causing stock markets to fall.
Investors should understand that the possibility of new coronavirus waves is still a major factor driving stock markets. According to Anthony Fauci, despite the fact that infections in the United States have dropped to 95,000 from nearly 150,000 in September, the number of new cases is still too high for a return to pre-pandemic normalcy. However, we now understand the pandemic much better than we did a year ago because treatments have improved and new drugs are entering the market to stem the rapid increase in cases. As a result, economies are expanding rapidly, which is positive for equity markets in general.
Third-quarter earnings are likely to be the most important factor driving volatility in stock markets over the next few weeks, if not months. Investors should keep in mind that, while third-quarter earnings are expected to grow, it is the fourth-quarter earnings that will be crucial, as tapering is expected to begin in November and rising commodity prices and the energy crisis are expected to heat up companies in the coming months. This is why company guidance is so important for investors right now.
Earnings projections have been underwhelming, so any positive earnings surprises will almost certainly boost stock market indices. Large financial institutions, such as JPMorgan Chase, will kick off the earnings season this week, with earnings expected to increase by 30% year-on-year. Earrings increased by 96.3% in the second quarter.
Today, stock traders will be digesting the Labor Department’s results of its Job Openings and Labor Turnover Survey. Job openings are expected to be 10.9 million, the same as those in July. Similarly, Federal Reserve Governor Richard Clarida and Fed Atlanta President Raphael Bostic are scheduled to speak today, which may move markets.
In addition to this, investors will also be looking at data from Germany. Germany is the economic powerhouse of the European region, and hence its data is given more attention as it is likely to have implications for the entire region. This is why today’s German economic sentiment data is important.
Bitcoin, the benchmark of cryptocurrencies, came in blazing through the $57,000 mark, a level not seen since May as investors applaud the digital coin’s performance and bet that the notorious asset will likely test record highs soon. Bitcoin rose as much as 4.3% on Monday and is currently hovering around the $57,000 price level. Earlier in 2021, in April, its price touched $65,000. The Bloomberg Galaxy Crypto Index, a product measuring the performance of cryptocurrncies, jumped nearly 2.4% yesterday.
A couple of reasons are deemed to be behind the recent surge in crypto prices. Over the last few weeks, regulatory crackdowns on the digital sector have been on the decline, both in the U.S. and China. Moreover, optimism is also on the rise as the U.S. Securities and Exchange Commission is expected to grant consent to a Bitcoin exchange-traded fund. Similarly, investors are also anticipating that Bitcoin futures ETF may be on the horizon after SEC chair Gary Gensler hinted that he was open to a fund exclusively focused on crypto derivatives.
Oil prices have been rising, powered by rising demand fuelled by a strong global economic recovery and power shortages in giant economies such as China. The upsurge in demand comes as oil producers continue to struggle to recover from massive cutbacks caused by the coronavirus pandemic, as well as rising gas prices, which are pushing governments to use oil as a source of energy. Brent, the crude benchmark, rose 1.5% to $83.65 per barrel after reaching its highest level since late 2018, $84.60 per barrel, in late 2018. It is forecast that a switch from gas to oil is likely to add 250,000 to 750,000 barrels a day to crude oil demand. The U.S. has repeatedly asked oil-producing nations to increase their oil supply.
Gold prices fell on Monday after the U.S. dollar appreciated following expectations that the Federal Reserve was unlikely to delay the initiation of winding down its quantitative easing starting in November, despite rising consumer prices and mediocre payroll data released last week. The dollar index, which measures the U.S. against a basket of currencies, was 94.4, very near to its yearly high of 94.504 in September.