Many investors are asking one pertinent question currently — why are stocks down today? After what looked like a promising rally last week, all three major indices are now down in early afternoon trading. Leading the way is the Nasdaq exchange, which has dropped 1.5% at the time of this writing.
Two key catalysts appear to be driving the overall downward trajectory. First, the highly-anticipated June consumer price index (CPI) report is due on Wednesday. This key inflation report is expected to show prices increased at an 8.6% year-over-year (YOY) rate in June. Driven by high energy and food prices last month, the headline number is widely expected to be ugly. Accordingly, market participants seem to be bracing themselves for the news.
Additionally, earnings season is also starting back up. For most quarters, this isn’t a good or bad thing. After all, it’s backwards-looking numbers we’re talking about. But this earnings season is a bit more important. That’s because analysts generally haven’t dropped their earnings estimates for most companies. Accordingly, the price-earnings (P/E) ratios of various companies will be in focus as the “E” part of the P/E equation drives likely downgrades.
Let’s dive more into what investors should expect moving forward this week.
Why Are Stocks Down Today? Where Do We Go From Here?
Inflation numbers are the all-important gauge most investors are watching right now. And, while these reports are backward-looking much like earnings, they do provide more details into specific drivers of inflation.
In July, energy prices have come down substantially. So, perhaps the market will brush off this report. However, it’s clear that valuations are not yet settled for most in the market. That means upcoming earnings reports will likely be key to watch as investors eye a “proper” market multiple moving forward.
Where stocks go from here is anyone’s guess. But it appears this week is shaping up to be volatile.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
