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Stock futures flat as earnings reporting season kicks off, inflation fears linger

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Stock futures were flat on Wednesday as traders weighed more surging inflation numbers and lackluster results from JPMorgan Chase to kick off the first quarter earnings reporting season.

Futures on the Dow Jones Industrial Average were lower by 9 points, giving up earlier gains. S&P 500 futures and Nasdaq 100 futures climbed 0.1% and 0.3%, respectively. Those moves come after the S&P 500 and Nasdaq Composite posted their third straight losing session on Tuesday amid March’s CPI showing the highest inflation since 1981.

First quarter earnings reporting season kicked off Wednesday and analysts have tempered their expectations amid rising commodity costs, the war in Ukraine and the lingering pandemic. Earnings for S&P 500 companies are expected to increase just 4.5% in the period, the lowest growth since the fourth quarter of the pandemic-plagued 2020, according to FactSet.

JPMorgan shares fell 3% in premarket trading after the bank reported a 42% decline in first-quarter profits stemming from increased costs for bad loans and market upheavals tied to Russia sanctions. JPMorgan did manage, however, to report $31.59 billion in revenue for the period, slightly more than expected by analysts.

CEO Jamie Dimon warned that the bank was building up credit reserves because of “higher probabilities of downside risk” to the US economy.

“Our sense is that 1Q results will be ‘OK’ relative to expectations and management guidance will be more negative than positive once again,” wrote Chris Senyek, chief investment strategist at Wolfe Research. “As such, we don’t expect earnings trends coming out of 1Q reports to propel equity markets higher. Rather, our sense is that high inflation, Fed tightening, and rising recession risks will remain the key drivers of overall market returns and sector rotation .”

On Wednesday a report showed producer prices, wholesale costs that could eventually lead to higher retail prices, jumped a record 11.2% in March on an annual basis. The monthly gain of 1.4% topped the 1.1% estimate from economists polled by Dow Jones.

The 10-year Treasury yield rose slightly to 2.74% following the producer prices report. The yield touched a three-year high of 2.82% this week before pulling back.

The producer prices report followed the consumer prices gauge released on Tuesday which showed an 8.5% surge in March, the Labor Department said on Tuesday. The report fueled further concerns of tighter monetary policy from the Federal Reserve, even as core CPI excluding food and energy costs rose 0.3%, slightly below expectations. Some on Wall Street saw this as a sign that inflation may be nearing a peak.

On the flip side, Delta was a big earnings season winner, gaining 5% as its quarterly loss was less than expected and it forecast a return to profitability for this quarter.

“Given the myriad headwinds faced by companies in the 1st quarter and the year ahead, we think 1Q reporting season has the potential to be a mess,” wrote Lori Calvasina, head of US equity strategy at RBC. “But we also see the potential for it to not be as bad as feared, given the likelihood that buy-side expectations are much lower than official sell-side forecasts – as long as robust assessments of underlying appetite/demand remain in place.”

“For now, we stick with our 5,050 year-end S&P 500 price target,” she added.

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