The S&P 500 edged lower after the index closed out Monday's session higher by 1%. The Nasdaq and Dow also gave up earlier gains to end the session lower. Treasury yields added to losses, with the yield on the benchmark 10-year note hovering below 1.6%. Cryptocurrency prices steadied, and Bitcoin prices (BTC-USD) traded little changed to hold just below $38,000 during afternoon trading in New York.
A new print on consumer confidence for April came in below expectations, with the Conference Board's headline sentiment index falling more than expected last month. At least some of the decline came as short-term income prospects were pressured by concerns over inflation, the Conference Board noted. And a separate report out Tuesday morning showed home prices surged by the most in 15 years in March, underscoring more key areas of the economy where supply and demand mismatches were pushing up prices.
Still, some members of the Federal Open Market Committee suggested market participants may not need to worry that rising prices will catalyze a near-term move in monetary policy in the near-term. St. Louis Fed President James Bullard told Yahoo Finance on Monday that he believed increases in inflation would be "mostly temporary," and that the Fed was "not quite there yet" when it came to discussing tapering its asset purchases.
And in separate comments, Kansas City Federal Reserve President Esther George said she did not want the Fed to be "overly reliant on historical relationships and dynamics in judging the outlook for inflation." The statement added to a litany of recent remarks from Fed officials downplaying the need for a near-term monetary policy move that might dampen the market rally.
Though the past two days of trading offered an at least brief respite for investors after last week's equity selling, some strategists still struck a cautious tone on stocks, given the still-elevated concerns around inflation.
"Right now everyone knows they should be worried about inflation and inflationary pressures and what that could mean in terms of a monetary response, or also companies' profitability," Shawn Cruz, senior market strategist at TD Ameritrade, told Yahoo Finance on Monday. "If they decide to keep those rising input costs on their balance sheet, then great, we're not going to see inflation rise at least on the consumer side, but we might see margins come in when [second-quarter] earnings come out."
"I think the path of least resistance could still be higher, but I do expect this choppiness to remain somewhere around what we're seeing right now, just off of highs, at least until we get a little more clarity, maybe some indications that can help us inform expectations moving forward," he added.
"We don't think there's any problem with the fundamentals in the tech space ... but we think it's been an over-owned, overvalued part of the market, and it's just the wrong macro backdrop for this part of the market at this moment in time," Lori Calvasina, chief equity strategist for RBC Capital Markets, told Yahoo Finance. "And so bottom line we still think inflationary pressures are here, and tech is one of the biggest sources of funding for rotation back into reflationing plays, things like financials, energy and materials," Calvasina said. "And we don't think those inflation pressures are going to abate any time soon."
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4:04 p.m. ET: Stocks end a choppy session lower after economic data disappoints; Dow drops 82 points, or 0.2%
Here were the main moves in markets as of 4:06 p.m. ET:
Gold (GC=F): +$15.60 (+0.83%) to $1,900.10 per ounce
10-year Treasury (^TNX): -4.4 bps to yield 1.5640%
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1:35 p.m. ET: The S&P 500 is 70% less labor intensive than it was in the 1980s, but some companies may still see margin pressure from wage increases: Bank of America
With many companies now struggling to find qualified workers to meet rising demand, prospects of wage inflation have risen in recent months. However, more S&P 500 companies are able to derive more sales per worker than did blue-chip companies just several decades ago, meaning wage increases would not necessarily translate to lower profitability at many corporations, according to a new note from Bank of America.
The S&P 500 "is 70% less labor intensive than in the '80s," Bank of America equity and quant strategist Savita Subramanian wrote in a note Tuesday. "If wage inflation increases from here, overall market margins have been immunized by efficiency/automation gains relative to prior decades. Since 1986: the number of employees per $1 million in sales declined from ~8 in 1986 to 2.3 today."
She added that since 1986, stocks in the lowest quintile by labor intensity, or by ratio of employees to dollars of sales, have outperformed their most labor-intensive counterparts by 2.3 percentage points per year when controlling for sector. The margin of outperformance has been even wider for innovation-centric stocks in the information technology, healthcare and communication services sectors.
"If labor inflation is likely to continue, watch margins for the most labor intensive stocks, and history would suggest investors avoid Consumer Discretionary when wages accelerate (and buy the sector when wages decelerate)," she added.
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11:46 a.m. ET: Stocks turn negative, giving up earlier gains
Here's where markets were trading midday in New York:
S&P 500 (^GSPC): -5.06 points (-0.12%) to 4,191.99
10:17 a.m. ET: There are multiple reasons 'investors could get a little nervous over the next few months' in addition to inflation concerns: Strategist
Though concerns over supply and demand mismatches and inflation have been top of mind for investors, a number of other factors could also pose risks to markets in the coming months, some strategists pointed out. These could include possible tax changes and decelerations in earnings growth.
"It includes the fact that we are having the headlines about inflation, and the fact that everyone's waiting for the Fed to blink, the expectations for earnings to not grow as much in 2022 as they have in 2021," she said. "Obviously we had a V-shaped recovery in earnings, but you've also got the potential headwinds with tax policy changes. And all of those are going to factor into growth expectations as we look forward into 2022."
"We do believe it's transitory, but just because it's transitory doesn't mean it won't be painful," she added on inflation. "And I think that's what's we're all experiencing now in terms of seeing higher prices, the fact that there are shortages of things and then of course you've got issues on the employment side with companies having difficulty attracting workers."
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10:09 a.m. ET: Consumer confidence pulls back more than expected in May, due in part to 'rising inflation expectations': Conference Board
The Conference Board's closely watched consumer confidence index decreased to 117.2 in May from a downwardly revised 117.5 in April, which marked the highest level since March 2020. Previously's April's index was reported at 121.7. Consensus economists were looking for the May index to come in at 118.8, according to Bloomberg data.
A subindex trading consumers' assessments of current business and labor market conditions increased during the month, while another index tracking consumers' short-term outlooks for business and labor market conditions declined.
"Consumers' assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers' short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead," Lynn Franco, senior director of economic indicators at The Conference Board, told Yahoo Finance.
"Consumers were also less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July," Franco added. "Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens."
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10:00 a.m. ET: New home sales dropped less than expected in April
New home sales fell by 5.9% in April over the previous month, giving back some of March's 7.4% gain, the Commerce Department said Tuesday. Consensus economists were looking for a drop of 7%, according to Bloomberg data.
The decrease brought new home sales down to a seasonally adjusted annual rate of 863,000 in April. Still, this level was more than 48% above the rate of 582,000 from April 2020, when stay-in-place orders were at their peak in the U.S.
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9:30 a.m. ET: Stocks open higher
Here's where markets were trading shortly after the opening bell:
Standard & Poor’s CoreLogic Case-Shiller national home price index rose 13.2% in March over last year, accelerating from a 12% year-on-year increase in February. This marked a tenth straight monthly increase, and the rate in advances came in at the fastest since December 2005.
The S&P CoreLogic Case-Shiller 20-city composite index, which tracks home prices changes in the 20 largest U.S. metropolitan areas, increased 1.6% month-on-month and 13.3% year-on-year. This was faster than the 1.3% and 12.6% increases expected, respectively, according to Bloomberg-compiled data.
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7:26 a.m. ET Tuesday: Stock futures point to a back-to-back session of gains
Here were the main moves in markets ahead of the opening bell:
NEW YORK, NEW YORK - MAY 11: A person sits by the Fearless Girl Statue in front of the New York Stock Exchange in Wall Street on May 11, 2021 in New York City. New York Governor Andrew Cuomo announced pandemic restrictions to be lifted on May 19. (Photo by Noam Galai/Getty Images) ·Noam Galai via Getty Images
