U.S. stocks ended largely higher on Wednesday, after minutes from the Federal Reserve’s latest policy meeting raised expectations that the central bank will start cutting its $ 120 billion a month purchases of bonds before the end of the year.

At Tuesday, all three major indices fell, extending a losing streak to a third session.

What drove the market?

The Dow blue chip gained, breaking a three-session slippage, after minutes from the Federal Reserve’s September meeting showed the central bank could start reducing emergency asset purchases as early as November or December, a sign that the US economy has clearly recovered from the worst shocks of the pandemic.

Several Fed officials have said they prefer even a faster cut from the current $ 120 billion pace of monthly Treasury and agency mortgage-backed securities purchases, rather than the $ 15 billion cut. proposed dollars.

But benchmark Treasury yields were also lower, putting pressure on stocks in banks that profit when yields are higher, while also boosting tech stocks. The 10-year Treasury note fell 1.549% as investors analyzed third-quarter U.S. corporate earnings as concerns over supply chain issues and labor shortages threaten to squeeze profits enterprises.

“This is the start of a pivotal period for the next two weeks, as we begin to see what companies have been through and what they anticipate they will experience over the next six months,” Wayne Wicker, chief investment officer at MissionSquare Retirement, said in a telephone interview.

“That’s why you see people babbling right now. You have mixed messages about whether the economy has peaked in earnings and whether inflation will eat away at margins and lower earnings, ”he said.

“Stock selection is going to be a bigger ingredient in the fourth quarter because not everything is going to go straight up.”

Wall Street weighed in on a closely watched inflation reading which came in hotter than expected.

Data showed that the U.S. consumer price index rose 0.4% in September after climbing 0.3% in August, the The Ministry of Labor said Wednesday. In the 12 months ending in September, the CPI rose 5.4% after rising 5.3% year over year in August.

See: Stronger-than-expected US inflation data has bond traders weighing the risk of a Fed policy error

Excluding the volatile components of food and energy, the CPI rose 0.2% after edging up 0.1% in August, the smallest increase in six months. Core CPI rose 4.0% year-on-year after rising 4.0% in August.

Higher prices for food, gasoline and rent accounted for most of the advance. Economists polled by the Wall Street Journal had forecast a 03% increase in the CPI.

“Wednesday’s still high Consumer Price Index marks about six months of warm inflation data, suggesting that inflation is not as transient as many investors had expected,” wrote Nancy Davis, founder of Quadratic Capital Management, in comments emailed Wednesday.

Companies are increasingly mentioning the impact of price pressures on earnings updates, and investors have been eagerly listening to senior executives’ advice on the inflation outlook.

JPMorgan Chase results were better than Wall Street’s earnings per share forecast by freeing up an additional $ 2.1 billion in loan loss reserves. Its shares, however, fell 2.6%.

On the flip side, if other big banks release loan loss reserves, that’s a bullish sign for the health of the U.S. economy, Wicker said.

“I think the model reported that the coast is pretty clear,” he said. “We really haven’t experienced the kind of loan losses we had to prepare for a year and a half ago. “

Read: Will the wild rally in bank stocks continue? Here are the numbers to watch in this week’s earnings

Analysts expect S&P 500 earnings to grow 27.6% annually, a much slower pace than a gain of 52.8% in the first quarter and 92.4% in the second quarter, both of which enjoyed favorable comparisons with the start of the COVID-19 pandemic last year. Bank of America warned that business advice could be ugly in the middle of a “decisive district”.

Opinion: Beating the market would still be difficult even if you knew the profits of the S&P 500 before everyone else

Despite Wednesday’s inflation data, Davis said Fed officials are unlikely to change their perspective on cutting spending, which would likely end buying by mid-2022 as he is preparing to eventually normalize interest rates.

“The Fed is expected to announce its cut plans already and the central bank probably wants to preserve optionality with its up cycle,” said Davis of Quadratic.

Which companies were the center of attention?

How did the other assets trade?

  • The ICE US Dollar Index, a measure of the currency against a basket of six major rivals, fell 0.5%.
  • US oil futures lost momentum, with the benchmark closing 0.3% to settle at $ 80.44 per barrel. Gold futures closed 2% higher to $ 1,794.70 an ounce.
  • The Stoxx Europe 600 closed 0.7% higher, while London’s FTSE 100 gained 0.2%.
  • The Shanghai Composite rose 0.4%, while Japan’s Nikkei 225 lost 0.3%.

Barbara Kollmeyer contributed reporting

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