Before The Bell - The futures market started negatively, following the third day in a row of declining index prices. Traders largely sold the market, as inflationary worries crept higher. Input prices have been rising across many commodities and could hurt margins and earnings in the coming quarters. Meanwhile, the investment community has shown greater concern for supply-chain disruptions domestically and abroad. These have been partially related to reduced production caused by the coronavirus pandemic and labor shortages domestically. Overall, these factors caused the S&P 500 to fall 11 points yesterday, while the Dow Jones Industrial Average was off 118 points and the NASDAQ declined 20 points. Moreover, market breadth was quite positive yesterday, as advancers outpaced decliners by a 1.5-to-1.0 ratio. This suggests strong moves lower in a few key names were enough to drag the indices lower. REITs were among the strongest performers yesterday, while communications stocks were among the weakest.

The futures market, as noted above, initially reacted negatively, with a report that Apple (AAPL) will have to cut its production of iPhone 13’s short by 10 million due to supply-chain disruptions, particularly in the semiconductor industry. This negative price movement occurred through the evening. Then a move to the upside occurred, putting futures into the green, bolstered by solid earnings reports out of Dow-30 component JPMorgan Chase (JPM) and fellow financial services behemoth BlackRock (BLK). By morning all eyes were on the CPI release. This release showed that noncore inflation was up 5.4% over the past twelve months, though this was largely driven by food and energy prices. The futures, which initially held their gains following the report, reversed course with inflation worries likely the main reason. 

In commodity news, oil prices rose to near seven-year highs yesterday, as continued worries about demand outpacing supply continue to increase. Many international arenas face shortages, including natural gas in Europe and coal in China, which have caused higher usage of oil as an energy source. Meantime, U.S. Treasury bond yields were slightly higher yesterday, as traders moved away from the safe-haven asset. Still, it should be noted that most of these moves were marginal. The VIX volatility index was only just below even, suggesting little change in demand for options protection. 
Looking ahead, several economic reports will be released in the coming days. These include producer (wholesale) prices for September and initial weekly jobless claims on Thursday. Retail sales for September, the consumer sentiment index for October, and the Empire State manufacturing index are slated for Friday. These reports should show how well the labor market and the broader economy are doing. Meantime, earnings season kicks off with a number of the big banks on the calendar this week, including Goldman Sachs (GS) on Friday. Overall, we think that traders will be looking to see how well the economy is doing and what effect this will have on inflation and interest rates. – John E. Seibert III

At the time of this article’s writing, the author held positions in one or more of the companies mentioned.