Investors Jittery Despite Solid Earnings

Positive corporate earnings data is pouring into Wall Street, but it is not doing much to calm the nerves of investors who are fixated on increasing inflation, the Fed’s next move, and events in Ukraine.

Earnings growth for S&P 500 companies is hovering at 28% for the fourth quarter of 2021 compared with the same period in 2020, well above the three-year average. Almost 85% of companies in the index have reported results.

Investors, however, have largely ignored these gains and are instead focusing on uncertainty about the future. Rising energy prices have added to the cocktail of factors that many investors expect to keep inflation high. Indeed, inflation in the US continues to run hot. Consumer prices for January rose 7.5% year-on-year, representing the fastest growth in 40 years. Producer prices are up 9.7%.

What does this mean for me? 

Many investors are starting to believe that the Fed is behind where it needs to be in the fight against inflation.

The bond market is particularly at risk. If bond investors lose faith in the Fed’s ability to tackle inflation, it could lead to a sell-off that could cause ripples in the rest of the market.

Bond yields move inversely to prices. High consumer prices mean lower bond yields. If investors start abandoning 10-year US Treasuries due to lower yields, any market correction in the form of a yield spike would make stocks look less appealing and throw the market off.