Stock futures drift ahead of fresh earnings, economic data

Stock futures opened little changed Wednesday evening after another choppy session in the markets, with another batch of bank earnings and labor market and inflation data due for release on Thursday.

Contracts on the S&P 500 hugged the flat line. Earlier, both the blue-chip index and Nasdaq closed out the session higher, led by a jump in technology stocks as Treasury yields pulled back after a recent run-up. The drop in yields— with the benchmark 10-year yield pulling back below 1.55% after topping 1.62% just earlier this week — also catalyzed a drop in the financials sector, which was the biggest laggard in the S&P 500 on Wednesday.

Bank earnings are set to continue on Thursday with companies including Bank of America (BAC), Morgan Stanley (MS) and Citigroup (C) posting quarterly results before the opening bell.

The results will follow a strong report from JPMorgan Chase on Wednesday. America’s largest bank by assets posted third-quarter results that handily topped estimates. Investment banking revenues picked up more than expected, and a strengthening economic backdrop enabled the firm to release more than $2 billion in credit reserves previously set aside to protect against potential customer defaults.

As earnings season rolls on in the coming weeks, investor focus will be fixed on companies’ commentary around prices increases, supply chain disruptions and labor challenges. All of these factors have been seen as contributing to an earnings slowdown compared to the second quarter. However, how long-lasting these challenges prove to be, and which companies will ultimately be hit the hardest by these factors, has been a central question for investors.

At the macro level, inflation has already lasted for months across various pockets of the economy. The Bureau of Labor Statistics’ (BLS) September Consumer Price Index (CPI) rose 5.4% in September compared to last year, coming in at its fastest pace since 2008. A jump in prices for rent, groceries and energy saw especially notable increases. On Thursday, the BLS is set to release its Producer Price Index (PPI), which is expected to show that selling prices for producers increased by 8.7% in September over last year, or the fastest rate on record in data spanning back to 2010.

Policymakers at the Federal Reserve have largely asserted that inflation during the recovery will prove transitory, and will wane as soon as supply bottlenecks ease. However, the string of above-target inflationary readings this year has called into question officials’ views on short-lived price pressures, and contributed to concerns that the central bank may need to act more quickly and aggressively than so far telegraphed to bring inflationary pressures in line.

“What we are seeing is an economy that continues to run hot,” Jeff Klingelhofer, Thornburg Investment Management’s co-head of investments, told Yahoo Finance Live. “Consumers today still have elevated savings, and they’ll be drawing that down in the months to come. And so really we are absolutely seeing higher wages trickling into the economy … The key to watch will be, as the economy continues to heal, as vaccinations continue to increase and businesses open, whether that trend continues.”

“We’ll be watching those wage numbers exceptionally carefully — they really are the key to trying to figure out where the Fed goes and whether this inflation is transitory in nature,” he added. “But at this point we think it will moderate in the months and quarters to come.”

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