Concerns regarding accelerating inflation are weighing on the U.S. interest rate hikes by the Federal Reserve.
Last month, the Fed increased the interest rate it controls, which influences very short-term loans, for the first time in three years in an effort to curb inflation. Higher rates work by increasing borrowing costs for everyone, thereby cooling the broader economy.
According to data from CME Group, traders now view the probability of a Federal Reserve rate hike at its meeting in two weeks as roughly a coin flip, up from a 22 per cent probability just one day prior.
“The consumer price index was a little hotter than expected, but not scorching hot,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management. “It was just hot enough to keep traders on edge.”
Elevated interest rates exert downward pressure on stock prices, and the primary way companies can mitigate this is by generating stronger profits. Analysts are currently anticipating such growth, which has allowed the S&P 500 to reach record levels despite the various challenges facing Wall Street.
BlackRock shares rose 3 per cent after the investment firm reported summer profit and revenue figures that surpassed analyst expectations. Investors funneled a net US$205 billion into BlackRock’s funds, including iShares exchange-traded funds, between July and September, bringing total assets under management to US$15.5 trillion. BlackRock generates revenue by collecting fees on these assets.
However, high expectations for profit growth also mean that companies are likely to be penalized if they miss their targets, which occurred for several other financial firms on Wednesday morning.
Bank of America shares fell 7.3 per cent after reporting third-quarter profit and revenue that trailed analyst estimates. The profit figures would have missed expectations even when excluding the US$1.2 billion in fines announced late Tuesday by the U.S. Treasury Department for alleged violations of anti-money laundering and sanctions laws.
State Street shares dropped 7.5 per cent after reporting quarterly revenue that fell short of analyst forecasts, even though its profit slightly exceeded expectations.
In international markets, indexes in Europe ticked higher following a weaker session in Asia. Markets in Paris rose 0.5 per cent, while Shanghai indexes declined 0.9 per cent, marking two of the most significant moves globally.
