US stocks fell early on Tuesday as investors weighed earnings and awaited key inflation data due later this week.
The S&P 500 was down 0.2%, while the Dow Jones Industrial Average was near flat. The tech-heavy Nasdaq fell 0.8%. The moves follow a lackluster start to the week on Monday that saw all three major indexes close little changed.
Shares of Micron Technology ( MU ) fell 3% after the memory chip maker warned that its fourth-quarter revenue could be at or below the lower end of a forecast range provided on the company’s June 30 earnings call.
Micron’s announcement comes a day after chip industry peer Nvidia ( NVDA ) said its second-quarter revenue would fall 19% from the previous quarter as its gaming business takes a bigger hit due to fewer consumer purchases of discretionary items such as laptops and video. game consoles
Michael J. Wilson, Chief Investment Officer, Morgan Stanley and David J. Kostin, Chief US Strategist, Goldman Sachs warned in separate notes earlier this week that corporate profit margins are likely to narrow next year as companies face strong cost pressures.
“While consumer prices continue to rise at a brisk pace, producer prices are rising at twice the pace,” Wilson wrote in a note Monday, adding that some analysts’ estimates for higher margins on 2023 are “unrealistic due to grip”. cost pressures and falling demand”.
A trader works on the floor of the New York Stock Exchange (NYSE) after a Fed rate announcement, in New York City, U.S., July 27, 2022. REUTERS/Brendan McDermid
Of nearly 90% of S&P 500 companies reporting for the second quarter, companies that reported negative earnings surprises saw no price change on average from two days before the earnings release to two days after the publication of earnings, compared to the five years. Average price declines of 2.4% during that same window for companies reporting negative earnings surprises, according to FactSet research data.
“The market has not punished S&P 500 companies that have reported negative EPS surprises on average,” noted John Butters, senior earnings analyst at FactSet.
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That reality echoes the sentiment of Wilson and Kostin, who indicated skepticism about the recent rally and indicated that markets are at odds with the earnings outlook.
Earnings for companies like Coinbase (COIN) and (RBLX) will be closely watched after the market closes.
Investors await the consumer price index (CPI) for July due out on Wednesday.
The headline reading is expected to reflect a slight moderation last month from the previous print, helped mainly by lower gas prices. However, the figure is still expected to show inflation rising at the highest rate in four decades. Economists polled by Bloomberg had forecast that the broader CPI measure rose 8.7% annually in July.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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