Stocks moved between small gains and losses Tuesday as investors focused on the possibility of more inflation later this year and economic recovery as the coronavirus pandemic eases.
The S&P 500 was down less than 0.1% as of 12:59 p.m. Eastern. The Dow Jones Industrial Average fell 66 points, or 0.2% to 34,261 and the technology-heavy Nasdaq rose 0.5%. The Russell 2000 index of small company stocks rose 0.5%.
Gains by technology and healthcare stocks were offset by a drop in banks and energy companies.
Retailers are among the last companies to report first-quarter results. Walmart rose 2.3% after the giant retailer’s results beat estimates as online shopping saw significant growth from a year ago, driven in part by Americans buying online in the pandemic.
The broader market made solid gains early in the year as investors bet on an economic recovery fueled by widespread vaccinations. Expectations were high for corporate earnings and the latest round of results has been surprisingly good. Wall Street is now digesting that growth and shifting to a more cautious view.
“Some sort of pause was always inevitable,” said Ross Mayfield, investment strategist at Baird. “Eventually markets see a more challenging landscape ahead and general uncertainty.”
Investors have been worried about whether rising inflation will prove to be either temporary or whether it will endure. Prices are rising for everything from gasoline to food as the economy recovers from its more than year-long malaise.
The fear is that the Federal Reserve will have to dial back the extensive support if inflation persists. That includes record-low interest rates and the monthly purchase of $120 billion in bonds meant to goose the job market and economy. For all the worries about inflation, many professional investors are echoing the Federal Reserve in saying that they expect rising prices to be “transitory.”
“I don’t think we’re entering a new period of structurally higher inflation, but at the same time its impossible to say it’s not one of the main risks investors face,” Mayfield said.
Higher interest rates drag on most of the stock market, but they are particularly painful for stocks considered the most expensive and those bid up for profits expected far into the future. This mostly involves technology stocks, which rose sharply last year and are valued highly on the future profits those companies could bring in.
AT&T fell 5.7% and continued a two-day slide after the company announced it would spin off its Warner media assets into a new company with Discovery Communications. AT&T only finished acquiring Warner, which includes HBO, CNN, DC Comics and other iconic properties, in 2018 and its new CEO is pulling an about-face on his predecessor’s decisions.