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Market Snapshot: U.S. stocks stumble into the close as June inflation report looms

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U.S. stocks wavered between slight gains and losses on Tuesday as the dollar backed off its latest highs against the euro and investors awaited a batch of inflation data expected Wednesday morning.

How are stocks trading

The Dow Jones Industrial Average
DJIA,
-0.43%

was up 90 points, or 0.3%, at 31,264.

The S&P 500
SPX,
-0.81%

was down 1.5 points, or 0.1%, at 3,852.

The Nasdaq Composite
COMP,
-0.93%

shed six points, or 0.1%, to 11,367.

On Monday, the Dow fell 164 points, or 0.5%, while the S&P 500 declined 1.2% and the Nasdaq Composite dropped 2.3%.

What’s driving markets

After a fleeting rebound off the 18-month lows the S&P 500 index touched in mid-June, the mood was again cautious on Tuesday as the strong dollar weighed on sentiment ahead of Wednesday’s consumer-price index for June, and the unofficial start of second-quarter earnings season on Thursday.

See: U.S. inflation is still rising. Can it reach 9%?

Traders remain wary about the prospects for corporate profits amid signs of slowing global economic growth and heightened inflation — although declining commodity prices have spurred hopes that the Federal Reserve might be able to transition back to cutting interest rates as soon as next year.

“There’s been some talk of peak inflation in the US due, among other reasons, to a fall in some agriculture food prices. After all, it was the soaring prices of wheat, corn and other soft commodities, as well as energy, that have boosted inflation so much over the past year or so,” said Fawad Razaqzada, financial markets analyst at City Index. “With these prices coming down a little, this is clearly some good news — and some light at the end of the tunnel.”

The drop in commodity prices, however, may not be reflected in the June consumer price index due Wednesday, he said. “So, just like May, there is a risk that inflation could overshoot again. If so, this will likely trigger fresh gains for the dollar.”

See also: ‘The good, the bad and the ugly’: here’s how the market might react to the latest U.S. inflation data

Investors worry about how a surging U.S. currency may impact earnings as businesses find it more difficult to export goods and services.

The dollar has soared versus major rivals in 2022, but pulled back from a 20-year high for the ICE U.S. Dollar Index
DXY,
+0.05%

Tuesday after the euro
EURUSD,
+0.04%

came tantalizingly close to hitting parity versus the U.S. currency for the first time in around two decades.

Read: Euro pauses at parity. But what comes next?

Big U.S banks will kick off the second quarter earnings reporting season proper in coming days, with JPMorgan Chase
JPM,
+0.57%

and Morgan Stanley
MS,
+0.26%

on Thursday, and Citigroup
C,
+0.40%

and Wells Fargo
WFC,
-0.14%

on Friday.

Expectations are for limited earnings growth. Analysts are forecasting an average 4.3% increase for companies in the S&P 500, which would be the weakest since the end of 2020, according to FactSet.

Three months ago analysts were projecting growth of 5.9%, and the difference reflects building concerns that rampant inflation, and the consequent higher borrowing costs imposed by central banks to counteract it, have caused profit margins to compress.

The National Federation of Independent Business said its small-business optimism index fell 3.6 points to 89.5, the lowest level since the first few months of the pandemic in 2020. The index has declined in five of the past six months.

The U.S. 10-year Treasury yield
TMUBMUSD10Y,
2.960%

eased 7.3 basis points to 2.924% as traders sought the relative safety of government debt. The market was warily eyeing the U.S. consumer price inflation data due for release on Wednesday.

Companies in focus

Shares of PepsiCo Inc.
PEP,
-0.24%

rose 0.1% after the beverage and snack giant reported fiscal second-quarter profit and revenue that were well above expectations, and affirmed its full-year outlook.

Peloton
PTON,
+2.02%

shares gained 4% after the fitness company announced it will outsource its manufacturing.

Other markets

Wall Street’s overnight dive left Asian bourses on the back foot. Hong Kong’s Hang Seng HK:HSI fell 0.9% and the Nikkei 225 JP:NIK in Japan slumped 1.8% after a measure of inflation hit 9.2%, higher than expected. The Stoxx Europe 600 XX:SXXP rose 0.4%, while the FTSE 100
UKX,
+0.18%

gaiend 0.2% in London.

The stronger dollar rippled across markets, pressuring products denominated in the buck. WTI crude CL.1 fell nearly 7% to trade near $97 a barrel. Gold GC00 was was flat at $1,731.70 an ounce.

Bitcoin BTCUSD once again fell below $20,000, dropping 0.4%.

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