S&P 500, Nasdaq Waffles On Recession Fears Ahead Of CPI Report

Wall Street struggled for direction on Tuesday as growing signs of looming recession kept investors cautious ahead of Wednesday's inflation data.

The S&P 500 and the Nasdaq seesawed between modest gains and losses, while robust aircraft deliveries by Boeing Co boosted the Dow modestly higher. All three were held in check by anticipation of Wednesday's Consumer Prices report from the Labor Department and big bank earnings later in the week.

"It's a wait-and-see day," said Paul Kim, chief executive officer at Simplify ETFs in New York. "We're in a holding pattern waiting for CPI tomorrow."

"Right now equities are waiting for clarity on earnings and recession fears," Kim added. "Inflation remains top of mind, but recession fears are winning the narrative."

While the CPI report is expected to show inflation gathered heat in June, the so-called "core" CPI, which strips away volatile food and energy prices, is seen offering further confirmation that inflation has peaked, which could potentially convince the Federal Reserve could ease on its policy tightening in autumn.

Kim expects year-on-year topline CPI to land "be in the high eight or potentially even nine percentage range, and with inflation that high the Fed has only one thing in mind."

Worries that overly aggressive moves by the Fed to reign in decades-high inflation could push the economy over the brink of recession were exacerbated by an inversion of the 2 year and 10 year Treasury yields, seen as a harbinger of near-term risk and economic contraction.

The market expects the central bank to raise the key Fed funds target rate by 75 basis points at the conclusion of its July policy meeting, which would mark its third consecutive interest rate hike.

At 2:12 p.m. ET (1812 GMT), the Dow Jones Industrial Average rose 75.93 points, or 0.24%, to 31,249.77, the S&P 500 lost 2.33 points, or 0.06%, to 3,852.1 and the Nasdaq Composite dropped 7.48 points, or 0.07%, to 11,365.12.

Among the 11 major sectors in the S&P 500, materials were enjoying the largest percentage advance, while energy shares, weighed down by plunging crude prices, were the biggest loser. [O/R]

The second-quarter reporting season is expected to hit full stride later in the week as JPMorgan Chase & Co, Morgan Stanley, Citigroup and Wells Fargo & Co post results.

As of Friday, analysts saw aggregate annual S&P earnings growth of 5.7% for the April to June period, down from the 6.8% forecast at the beginning of the quarter, according to Refinitiv.

PepsiCo got the ball rolling by beating its quarterly earnings estimates and announced it could increase prices amid resilient demand.

Shares of Boeing Co jumped 8.9% after the plane maker's June aircraft deliveries since March 2019.

The S&P 1500 Air Lines index gained 6.9%.

Apparel retailer Gap Inc fell 3.1% following its announcement that its CEO would step down, and warned margins would stay under pressure in the second quarter due to input costs.

Software provider Service Now plunged 11.2% after its CEO's remarks about macro headwinds and currency pressures. Other software companies declining included Salesforce.com, Paycom Software, Intuit and Microsoft, were also down.

Advancing issues outnumbered declining ones on the NYSE by a 1.56-to-1 ratio; on Nasdaq, a 1.19-to-1 ratio favored advancers.

The S&P 500 posted one new 52-week high and 29 new lows; the Nasdaq Composite recorded 12 new highs and 117 new lows.