Stocks declined on Thursday after the blue-chip Dow Jones Industrial Average retook its record high in the prior session amid solid corporate earnings.
The Dow Jones Industrial Average fell 115 points, or 0.3%. The S&P 500 lost 0.06% and the Nasdaq Composite added 0.3%.
IBM shares lost more than 7% following a revenue miss in the third quarter. Its top two business segments — global services and the Cloud & Cognitive Software business — fell short of estimates.
Tesla shares gained 3% after the electric-car maker posted record earnings and revenue in the third quarter that beat expectations.
American Airlines added about 1.5% after it posted a profit due to federal aid for the third quarter.
“What has been most interesting to us is the success companies are having managing intense supply chain constraints along with the dismissive attitude investors are displaying toward many of those firms seeing cost/margin hiccups,” said Vital Knowledge’s Adam Crisafulli. “With peak supply chain negativity, a market priced for Fed tapering, and Washington abandoning tax hikes, bulls have the baton.”
Corporate America has so far had a solid performance in the third quarter, even as inflation proves to be persistent. Of the 101 S&P 500 companies that have reported through Wednesday, 84% topped analysts’ earnings estimates according to Refinitiv.
Jim Paulsen of the Leuthold Group noted that correlation between the inflation rate and profit margins has been positive for the past 20 years.
“Investors are understandably concerned about reports that inflation pressures are eroding profit margins and what that may mean for the stock market,” he said in a note Thursday. However, “elevated inflation appears to bolster S&P 500 EPS on the whole.”
Jobless claims fell to a new pandemic low last week, the Labor Department reported. Investors are watching to see continue to fall, as the Federal Reserve has indicated it will start to normalize its monetary policy as the central bank nears its economic goals.
Initial job claims came in at 290,000 for the week ending Oct. 16, which is down from the previous week by 6,000 and lower than the 300,000 estimated by economists surveyed by Dow Jones.
On Wednesday the Dow jumped about 150 points to hit an intraday record, surpassing its peak from mid-August, and fell just short of its closing record. The S&P 500 climbed 0.4% for its sixth straight positive day and sits just 0.2% below its all-time high. The tech-heavy Nasdaq Composite closed Wednesday’s session slightly lower, however.
Loading chart…
Investors have been monitoring the third-quarter earnings season to assess profit growth as well as signs of cost pressures and supply-chain disruptions for the rest of the year.
“There are no signs of widespread erosions of margins at the moment. Perhaps there is so much money sloshing about that for now prices are broadly being passed on,” Jim Reid, head of thematic research at Deutsche Bank, said in a note.
The 30-stock Dow on Wednesday jumped about 150 points to hit an intraday record, surpassing its peak from mid-August.