Stocks Rise to Record as Earnings Boost Sentiment: Markets Wrap

(Bloomberg) — U.S. stocks rose to an all-time high while investors digested a spate of corporate results amid rising expectations for inflation.

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The S&P 500 rose 0.2% while the Nasdaq 100 gained 0.6% as investors looked to company earnings for more details on price pressures. Tesla Inc. raced toward a record high after a ninth straight quarter of profits. Meanwhile, International Business Machines Corp. fell after revenue missed estimates.

A solid start to the earnings season has helped counter concerns about inflation. However, shares in the companies that have missed estimates have weighed on the benchmark index, which was little changed for most of the day. Investors have done little to reward the majority of S&P 500 companies that have beat expectations so far while severely punishing those that have missed, according to data complied by Bloomberg.

“I think it’s OK that investors are looking at earnings and going through them with a very fine-toothed comb,” Liz Young, head of investment strategy at SoFi, said on Bloomberg’s “QuickTake Stock” streaming program. “We’re in a time-period where we are finally, it seems like, going to shift away from markets that are driven by monetary policy and back to markets that are driven by fundamentals.”

Market-implied expectations for U.S. inflation for the next half-decade have surged to the highest in 15 years as more investors lose faith in the Federal Reserve narrative that rising prices will be “transitory.”

The five-year Treasury yield climbed above 1.21%, the highest since February 2020, as traders increased their bets the Fed may tighten policy sooner than expected. Solid economic reports on Thursday also strengthened predictions. The latest jobless claims report unexpectedly declined to the lowest since March 2020. Sales of previously owned U.S. homes also rose in September by the most in a year.

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Meanwhile, Congressional Democrats are at odds over both the tax and spending aspects of President Joe Biden’s economic package.

“Good jobs plus high inflation creates a significant one-two punch against the Fed’s accommodative stance,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial. “Easing and even rate increases down the road could start to be accelerated if we see more momentum like this, which perversely could create headwinds for the market.”

With stocks at or near record highs, traders are bracing for volatility while also keeping a close eye on company margins, pricing power and outlooks.

“At a stock level, you really need to focus on companies that have pricing power” and can pass along costs, Steve Chiavarone, vice president and general manager at Federated Global Investment, said on Bloomberg TV’s “Surveillance.” “If you can’t, and it starts eating away at your margin, I think you need to expect to get punished.”

Crude oil slipped, the dollar was stronger against peers and…