The Nasdaq closed down on Tuesday after a dismal forecast from Micron Technology pulled chipmakers and tech stocks lower as investors await US inflation data that could lead the Federal Reserve to further tighten its efforts to curb inflation.
High inflation numbers on Wednesday, following last week's blowout jobs report, would likely stop the Fed from easing interest rates hikes anytime soon and halt the market's rally off mid-June lows. Traders see a 68.5 percent chance of the Fed raising rates by 75 basis points in September, in what would be its third big hike in a row.
Adding to concerns of a tight labour market and runaway inflation, data on Tuesday showed an acceleration of unit labour costs in the second quarter, which suggested strong wage pressures will help keep inflation elevated.
Unit labour costs – the price of labor per single unit of output – rose at a 10.8 percent rate, following a 12.7 percent rate of growth in the first quarter, the Labour Department said.
"We're still seeing wage pressure building, using last Friday's job data as a gauge," said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.
Chang remains cautious about the market's outlook. "I don't think it's going to be a set of numbers that will change the Fed’s policy course," he said.
Inflation at the moment is primarily supply driven, so the traditional central bank playbook of tightening rates to crimp demand will not be as effective as previous cycles, said Jean Boivin, head of the BlackRock Investment Institute.
"We're going to see central banks being surprised by inflation. They will have to sound hawkish on the back of this," Boivin told the Reuters Global Markets Forum.
The Dow Jones Industrial Average fell 0.18 percent, to 32,774, while the S&P 500 lost 0.42 percent, to 4,122 and the Nasdaq Composite dropped 1.19 percent, to 12,494.
Micron Technology slid 3.7 percent after the memory-chipmaker cut its current-quarter revenue forecast and warned of negative free cash flow in its next quarter as demand wanes for chips in PCs and smartphones.
US vaccine maker Novavax slumped 29.6 percent after it halved its annual revenue forecast as it does not expect further sales of its Covid-19 shot this year in the United States amid a global supply glut and soft demand. (Reuters)