US stock futures fell on Wednesday as inflation in September was higher than expected. Investors were worried that rising prices could remain a problem for the US economy. Treasury yields also went up, putting pressure on the stock market.
Futures for the S&P 500, Nasdaq and Dow Jones all fell before the market opened. S&P 500 futures dropped 0.2%, while Nasdaq-100 futures fell 0.5%. Dow Jones futures lost 62 points, or 0.1%.
US inflation rises to 3.7% in September
US inflation rose 3.7% in September compared with the same month last year. This was higher than the 3.6% rise expected by economists surveyed by Dow Jones. The higher inflation figure raised fresh concerns that rising prices could continue to hurt the US economy, CNBC reported.
Prices rose 0.6% in September compared with August. This was in line with economists' expectations. However, the yearly inflation rate was higher than expected, worrying investors about the future of the US economy.
Core CPI inflation rises 2.6% annually
Core inflation also came in slightly above expectations. Core CPI, which excludes food and energy prices because they can change sharply, rose 0.3% month over month and 2.6% year over year. Economists had expected monthly growth of 0.2% and annual growth of 2.5%.
{{/usCountry}}Core inflation also came in slightly above expectations. Core CPI, which excludes food and energy prices because they can change sharply, rose 0.3% month over month and 2.6% year over year. Economists had expected monthly growth of 0.2% and annual growth of 2.5%.
{{/usCountry}}Also read: US inflation to hit 3.6% in September? Why CPI data matters for Fed rate decision
Treasury yields rise as stock market faces pressure
Treasury yields increased after the inflation report. The 10-year Treasury yield rose by more than 6 basis points to 5.278%, while the 30-year Treasury yield climbed by more than 2 basis points to 5.59%. Both yields had reached fresh 24-year highs the previous week.
Higher Treasury yields could put further pressure on stocks. When bond yields rise, investors may find bonds more attractive compared with stocks. Higher yields can also increase borrowing costs for businesses and put pressure on the prices investors are willing to pay for shares.
Jeff Schulze of the Franklin Templeton Institute said the inflation report could weigh on riskier investments. He said the report could increase expectations of near-term interest rate hikes. This could strengthen the US dollar while putting pressure on stock valuations, particularly as longer-term Treasury yields rise, as quoted by CNBC.
High gas prices and rising oil costs add to inflation worries
High oil prices and rising gasoline costs are adding to inflation concerns. US gasoline prices averaged $4.34 per gallon, compared with $3.08 per gallon a year earlier, according to AAA. Higher fuel costs can increase household expenses and raise transportation costs for businesses.
President Donald Trump recently announced temporary relief for Russian diesel fuel exports, but analysts do not expect it to sharply reduce fuel prices. The announcement came as fuel costs remained high. Analysts said the move was unlikely to provide much relief to truckers and farmers.
US oil prices also moved higher on Wednesday. West Texas Intermediate (WTI), the US oil benchmark, rose nearly 2% to around $96 per barrel. Higher crude oil prices can add to concerns about fuel costs and inflation.
Bank of America stock falls after Q3 earnings report
Bank of America shares fell after the bank reported its third-quarter results. The stock declined around 3% in one update and was down 6% in earlier premarket trading. The bank reported earnings of 91 cents per share, compared with the $1.10 expected in the provided report, while revenue came in at $30 billion against expectations of $30.69 billion.
Bank of America also faced more than $1.2 billion in federal penalties. The penalties were announced a day before its earnings report. Regulators said the bank had failed to report more than $5 billion in suspicious transactions.
Also read: Oil prices today: Brent crude hits $106.60 after Saudi Aramco attack, ship strikes near Hormuz
Morgan Stanley stock falls despite strong Q3 earnings
Morgan Stanley reported better-than-expected results for the third quarter, but its shares still fell. The bank earned $3.03 per share and made $20.34 billion in revenue. Analysts surveyed by LSEG had expected earnings of $2.91 per share and revenue of $19.95 billion. Even after beating both estimates, the stock fell around 1% to 2%, according to CNBC.
Morgan Stanley's stock trading business performed especially well. It made $5.79 billion in revenue, more than $900 million above the estimate from StreetAccount. However, the strong performance was not enough to stop the bank's shares from falling before the market opened.
Big bank earnings have struggled to lift stock prices despite strong quarterly results. Goldman Sachs and Citigroup shares also ended lower on Tuesday, even after several major banks reported strong results. The market reaction suggests investors are demanding stronger results and better future outlooks from companies this earnings season.
Chip stocks fall as investors worry about high valuations
Chip stocks extended their recent losses as investors remained concerned about valuations. Micron Technology shares fell 2% after dropping more than 3% in the previous trading session. Advanced Micro Devices and Intel each lost more than 2%, while Western Digital and SanDisk fell 3%.
Investors are watching semiconductor earnings growth closely. FactSet data showed that S&P 500 companies were expected to report blended earnings growth of around 30%. Semiconductor and semiconductor equipment companies were expected to record growth of 130%, making the sector a major contributor to overall earnings growth.
Strong demand for chips has supported the sector, but investors are questioning whether stock prices have risen too far. Marta Norton, chief investment strategist at Empower, told CNBC that the business fundamentals for chips remained strong. However, she questioned how much further semiconductor valuations could rise.
Also read: US gas prices hit $4.35 as diesel tops $6.27 amid global oil supply fears
Asian stock markets deliver mixed results
Asian stock markets showed mixed results on Wednesday. Australia's S&P/ASX 200 fell 0.62%, while Japan's Nikkei 225 rose 0.32%. South Korea's Kospi gained 0.82%.
European stock markets rise
European stock markets traded higher on Wednesday. The Stoxx 600 rose 0.6%. France's CAC 40 and Germany's DAX each gained 0.6%, while the UK's FTSE 100 rose 0.4%.
The September inflation report has become a key concern for US stock investors. Inflation came in above expectations on an annual basis, Treasury yields rose, and several major bank and chip stocks declined before the market opened. Investors are now weighing inflation risks against corporate earnings growth as the third-quarter reporting season continues.