Despite multiple volatile trading sessions in the last week, the S&P 500 index turned positive to close at 4,370 points on October 8. It fell by 0.6% yesterday and might continue to remain under pressure in the near term. The world's most popular index is trading 4% below all-time highs for a multitude of reasons, a few of which are discussed here.
Wall Street and investors are worried about rising prices also known as inflation, that is expected to haunt equity markets in the next few months. In case, inflation gains pace, it might impact consumer demand which in turn will delay economic recovery.
The jobs report for September was released last Friday and average hourly earnings climbed 0.6% month over month and 4.6% year over year. It was the second-fastest pace in the last 14 years. Higher labor costs will force enterprises to increase the prices of goods and services.
Companies such as FedEx and UPS have already increased prices to offset higher costs. Consumer giant Pepsi has also raised prices on its wide portfolio of snacks and drinks and this trend is likely to continue in 2022 as well.
Rising oil prices will also weigh heavily on inflation. Crude oil prices are up 64% in 2021 while natural gas prices have more than doubled since April. Further, coal prices are trading at record highs due to the ongoing energy crisis impacting several countries. Higher energy prices are similar to a tax as it limits the spending power of consumers which is a key driver of economic growth.
In the second quarter of 2021, 224 companies part of the S&P 500 mentioned “inflation” on earnings call which was the highest number on record. This figure is likely to move higher in Q3 earnings call's that will kick off this week. Several companies across sectors will point to higher costs and supply chain disruptions in case they report revenue and earnings below estimates.
Leading investment bank Goldman Sachs lowered economic growth target projections for the U.S. this year. It expects the GDP to increase by 5.6% in 2021 and by 4% in 2022 due to a decline in fiscal support and a delayed recovery in consumer spending. Goldman Sachs had earlier estimated GDP growth at 5.7% in 2021 and 4.4% in 2022.
According to Utradea's social media dashboard, Clover Health was the most popular stock on Reddit in the last 72 hours. Clover Health stock went public in early 2021 and has since fallen by 50% since its IPO. CLOV stock touched a record high of $28.85 and is currently trading at $8.06.
The other stocks popular on Reddit include SmileDirectClub, GameStop, Palantir, and Tesla.