US stocks declined on Wednesday amid concerns that inflation could be a problem for the global economic recovery, which, in turn, will force central banks to raise interest rates earlier than planned.
Latest data have shown that new home constructions in the US slowed, indicating the struggle brought by high material prices and continued labor shortages. Retailers are also facing difficulties, for example, Target Corp. sank after warnings of mounting price pressures.
Meanwhile, Nasdaq 100 skyrocketed, thanks to the rally observed in tech giants such as Apple and Tesla.
UBS Senior Vice President Andrea Bevis said: "While we remain structurally bullish on stocks, we do anticipate a push-and-pull of market dynamics into year-end given inflation concerns, supply-chain pressures, labor shortages, and fiscal uncertainty."
Goldman Sachs CEO David Solomon added that markets will face challenges because the economy is struggling to cope with the dramatic impact of the coronavirus pandemic. He said that if rates rise, some markets will see a downturn.
Giorgio Caputo, senior portfolio manager at J O Hambro Capital Management, also said that inflation is "clearly not as transitory as some might have hoped, but we're not at the point yet where we could definitively say that it's ingrained or persistent."
In any case, the worst quarter for the S&P 500 since the start of the pandemic has put off some investors, while the surge in retail has eased amid total equity volume from individual investors falling to 19%.
Other key events for this week are:
- US jobless claims report (Thursday);
- data on Philadelphia manufacturing activity (Thursday);
- speeches of Richard Clarida and Mary Daly (Friday);
- Canada retail sales report