U.S. equities finished mostly higher in another volatile session, as a busy day unfolded with the unofficial start to Q3 earnings season kicking off and the markets receiving their first look at the September inflation picture. Further contributing to the cautious tone was close attention being paid to this afternoon's release of the minutes from the Fed's monetary policy meeting last month that resulted in a signal that the commencement of tapering was in the offing. Financials remained in focus and struggled even after Dow member JPMorgan Chase & Co and BlackRock posted stronger-than-expected earnings results, while Delta Air Lines' earnings report and guidance were highly scrutinized. Consumer price inflation came in hotter than expected on the headline rate as food, shelter and energy costs remained elevated. Treasuries were mixed with the yield curve flattening noticeably, while the U.S. dollar saw pressure. Crude oil prices were mixed and gold rallied. Europe closed mixed and Asia also diverged.

The Dow Jones Industrial Average declined nearly 1 point to 34,378, while the S&P 500 Index increased 13 points (0.3%) to 4,364, and the Nasdaq Composite rose 106 points (0.7%) to 14,572. In moderate volume, 795 million shares were traded on the NYSE and 4.0 billion shares changed hands on the Nasdaq. WTI crude oil dipped $0.20 to $80.44 per barrel. Elsewhere, the gold spot price jumped $33.80 to $1,793.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.5% to 94.02.

Dow member JPMorgan Chase & Co. (JPM $161) reported Q3 earnings-per-share (EPS) of $3.74, including a $0.52 per share benefit related to a $2.1 billion loan loss reserve release and a $0.19 per share tax benefit. FactSet had called for the company to post profits of $3.00 per share. Revenues grew 2.0% year-over-year (y/y), but were down 3.0% quarter-over-quarter, at $30.4 billion, above the Street's expectation of $29.8 billion. The company noted that it delivered strong results as it continues to show good growth despite the dampening effect of the Delta variant and supply chain disruptions, while saying that its loan loss reserve release was due to the continued improvement in the economic outlook. 

JPM added that its consumer and community banking unit benefited from solid growth in debit and credit card spending, continued strength in home lending, and as auto lending levels remained historically high, though its corporate segment revenues were down. Net interest income was roughly in line with forecasts, while its net interest margin came in slightly below FactSet estimates. Its corporate and investment banking segment was bolstered by a surge in M&A activity and strong performance in IPOs, while market trading revenues were "very strong overall" and down just 5.0% compared to Q3's record last year, as continued normalization in fixed income offset a strong performance in equities. JPM traded lower. 

BlackRock Inc. (BLK $868) announced adjusted Q3 earnings of $10.95 per share, north of the forecasted $9.39, with revenues rising 16.0% y/y to $5.1 billion, above the expected $4.8 billion. The company said organic growth—excluding acquisitions and divestitures and foreign exchange—was broad-based, spanning its active platform as well as in each of its ETF product categories. The company also noted that it delivered 10 straight quarters of active equity inflows and client demand for ESG remains strong. Shares finished nicely higher.  

Delta Air Lines Inc. (DAL $41) posted adjusted Q3 EPS of $0.30, above the expected $0.15, but adjusted revenues of $8.3 billion were down 34% compared to the same period in 2019. The company said its domestic passenger revenues were 72% restored compared to September 2019, though international passenger revenues recovered to 42% and business travel volumes improved in July but paused at roughly 40.0% recovered from 2019 levels. DAL did point out that it saw improving domestic corporate volumes exiting September and that improvement continues in October, but warned that Q4 results will be negatively impacted by higher fuel costs. Shares saw some pressure.

Q3 earnings season unofficially kicked off and compared to last year, earnings growth for the S&P 500 is expected to be robust, rising nearly 28% to mark the third highest y/y growth since 2010 per FactSet, but guidance and the impact of rising inflation and supply chain issues are likely to be highly scrutinized.

Director and Senior Investment Strategist with the Schwab Center for Financial Research (SCFR), David Kastner, CFA, provides his latest Schwab Sector Insights: A View on 11 Equity Sectors, offering a look at what we expect to see over the next three to six months.

Earnings season comes as the markets have been choppy and Schwab's Chief Investment Strategist Liz Ann Sonders provides her commentary, Songs of Experience: Reminiscences of a Strategist, offering lessons she has learned in her 35 years on Wall Street, which are especially relevant given the recent market action.

Find all our market commentary on our Market Insights page at www.schwab.com and follow us on Twitter at @SchwabResearch.

Consumer price inflation continues to climb, look at Fed meeting due out in afternoon

The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in September, above the Bloomberg consensus estimate calling for it to match August's unrevised 0.3% increase. The core rate, which strips out food and energy, increased 0.2% m/m, in line with expectations, and following August's unadjusted 0.1% rise. Y/Y, prices were 5.4% higher for the headline rate, north of forecasts calling for it to remain at August's unrevised 5.3% rise. The core rate was up 4.0% y/y, matching projections and August's unrevised increase.

The Bureau of Labor Statistics (BLS) said prices for food and shelter rose in September and together contributed more than half to the headline figure, while energy prices were also higher. For the core rate, the BLS said along with shelter costs, prices for new vehicles, household furnishings, and motor vehicle insurance also rose. However, prices for airline fares, apparel, and used cars and trucks all declined over the month. 

The MBA Mortgage Application Index ticked 0.2% higher last week, following the prior week's drop of 6.9%. The modest increase came as a 0.5% dip for the Refinance Index was more than offset by a 1.5% gain for the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 3.18%.

In afternoon action, the Fed released the minutes from its September monetary policy meeting, noting that the Federal Open Market Committee (FOMC) felt it has come close to reaching its goals and that it could begin to pulling back its stimulus measure put in place to combat the pandemic's effect on the economy. The report showed that officials could begin by cutting $10 billion a month in Treasuries and $5 billion monthly in mortgage-backed securities, with a target date to end purchases by mid-2022. "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 summary added. The FOMC's next two-day monetary policy meeting is slated for November 2-3. For more insight on the Fed's September decision, Schwab's Liz Ann Sonders offers her commentary, Fed Tapering Coming Soon; Dots Plot Has Thickened.

Treasuries have seen pressure and the yield curve has steepened as the markets grappled with expectations that the Fed is set to begin to rein in its extraordinary measures put in place to combat the impact of the pandemic, against the backdrop of persisting inflation pressures. Schwab's Director and Fixed Income Strategist for the SCFR, Collin Martin, CFA, offers his latest article, Waiting for Rates to Rise? What You May Miss by Staying in Cash. Collin discusses how rather than waiting on the sidelines, consider short-term, fixed-rate corporate bonds. 

Treasuries were mixed, as the yield on the 2-year note ticked 1 bp higher to 0.36%, while the yield on the 10-year note was down 4 bps at 1.54% and the 30-year bond rate dropped 7 bps to 2.04%.

Tomorrow's U.S. economic calendar will continue to develop the September inflation picture, with the release of the Producer Price Index (PPI), forecasted to rise 0.6% m/m after gaining 0.7% in August, and be up 8.7% y/y after the prior month's 8.3% increase. The core PPI is projected to rise 0.5% m/m, following the 0.6% gain seen in August, and be 7.1% higher y/y, after the prior month's 6.7% gain. The docket will also bring the timely indicator of initial jobless claims for the week ended October 9, expected to show 320,000 first time unemployment claims were filed, a slight deceleration from the 326,000 registered the prior week.

Europe mixed following U.S. data, while rates cool from a recent run, Asia also diverges

European equities closed mixed as volatility remained following the recent jump in global bond yields amid growing expectations of tighter global monetary policies. The markets digested the unofficial start to Q3 earnings season in the U.S. with JPMorgan Chase & Co. topping forecasts, while U.S. consumer price inflation continued to grind higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Inflation: Persistently Transitory, noting how persistently going from one transitory source of inflation to the next may keep inflation elevated for longer than markets currently anticipate.

Data on this side of the pond was also sifted through, with U.K. industrial and manufacturing production for August rising more than expected but U.K. GDP growth coming in slightly below forecasts for August. Elsewhere, Eurozone industrial production dropped by a slightly smaller amount than expected for August. The euro and British pound were higher versus the U.S. dollar. Information Technology issues led the way as bond yields in the Eurozone and the U.K. cooled off noticeably from recent rallies, though the Energy sector gave back some of a recent surge, and Financials traded lower despite the earnings results out of the U.S. 

The U.K. FTSE 100 Index was up 0.2%, Germany's DAX Index rose 0.7%, France's CAC-40 Index increased 0.8%, and Switzerland's Swiss Market Index gained 0.5%, while Spain's IBEX 35 Index declined 0.6% and Italy's FTSE MIB Index decreased 0.1%. 

Stocks in Asia finished mixed as the global markets await today's start of key inflation data and Q3 earnings results out of the U.S., while grappling with expectations of tighter monetary policies and surging energy costs. Meanwhile, the markets digested some economic data in the region that showed Japan's core machine orders—a gauge of capital investment—unexpectedly fell m/m in August, but were stronger than expected compared to the same period last year. Also, India reported late yesterday that its consumer price inflation cooled more than expected for September and its industrial production for August rose more than forecasted. Finally, China's September exports rose more than projected though imports came in below forecasts. Japan's Nikkei 225 Index traded 0.3% lower, even as the yen held onto a recent slide, and as Japanese stocks have been volatile after strong September and Q3 performances as discussed by Schwab's Jeffrey Kleintop in his article, It's All Over for Japan (and That's Good). China's Shanghai Composite Index rose 0.4% and Australia's S&P/ASX 200 Index dipped 0.1%. South Korea's Kospi Index traded 1.0% higher and India's S&P BSE Sensex 30 Index moved 0.8% higher, while Hong Kong markets were closed for a holiday. 

Tomorrow's international economic calendar will be focused on Asia, with the September releases of CPI and PPI, as well as lending statistics coming out of China, along with Australia's employment change, and India's trade balance.