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S&P 500 Climbs as Tech Flexes Muscles, but Inflation Jitters Stifle Upside

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By Yasin Ebrahim

Investing.com – The S&P 500 closed higher Wednesday, led by strength in tech amid worries that persistently elevated inflation could dent the recovery just as the Fed's September minutes signaled the taper of bond purchases could get underway as soon as next month.

The S&P 500 rose 0.3%, the Dow Jones Industrial Average was flat, the Nasdaq Composite was up 0.73%.

"Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December," the Fed minutes showed.

The minutes arrived after Labor Department reported that consumer prices in September rose more than expected.

The consumer price index rose 0.4% last month, above the 0.3% rise in August, and more than estimates of 0.3%. The uptick in consumer prices in September lifted the year-on-year increase in the CPI to 5.4% from 5.3% in August.

Signs that price pressures are beginning to emerge in sticker areas of the economy such as rents and owners' equivalent rents will test the Federal Reserve's ongoing narrative that inflation remains transitory.

"[P]rice pressures are shifting to the stickier components and will make the Fed's 'transitory' thesis more difficult to defend," Jefferies (NYSE:JEF) said in a note.

The 10-year inflation breakevens -- a key measure of inflation expectations over the next decade – climbed to 2.53%, the highest since May 2018. A further increase in the pace of the inflation could flip the relationship between bonds and stocks, and pressure the overall market lower.

"Once [10-year breakevens] go above two and a half percent, stocks and bonds tend to move in the same direction," Christoph Schon, Senior Principal, Applied Research at Qontigo, told investing.com in an interview on Wednesday. "If we were to see a further increase in breakeven inflation rates, then we could see an simultaneous sell off of the stock and bond market continue."

Financials were the biggest drag on the broader market, paced by a decline the banking stocks as JPMorgan got the third-quarter earnings season underway.

JPMorgan Chase (NYSE:JPM) reported Q3 earnings of $3.74 per share on revenue of $29.65 billion, compared with estimates of $2.92 on revenue $29.65 billion. Its shares fell more than 2%.

BlackRock (NYSE:BLK) also delivered a beat on both the top and bottom lines, sending its shares more than 3% higher.

Delta Air Lines (NYSE:DAL) swung to a profit in the third quarter, but the airline warned that higher fuel costs will hurt fourth-quarter results. It's shares fell nearly 6%.

Energy cut some losses as oil prices recovered from session lows on expectations that demand will continue to strengthen.

Russian President Vladimir Putin said it was "quite possible," that oil prices could top $100 per barrel.

Megacap tech was supported by fall in Treasury yields, but gains in the overall sector were kept in check by weakness in Apple.

Apple (NASDAQ:AAPL) fell about 0.5% after Bloomberg reporting, citing unnamed sources, that the tech giant it likely to cut iPhone 13 production by as many as 10 million units amid the ongoing global chip shortage.

Google-parent Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB), and Amazon (NASDAQ:AMZN) were above the flatline.

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