Midday Market Update: Investors Wary As Inflation Fears Calm | ETF Trends

U.S. stocks and exchange traded funds (ETFs) are mixed this morning as investors remain ambiguous on signs of an economic recovery.
The nation’s second-largest package shipper, FedEx Corp. (FDX), posted a fiscal fourth quarter profit, excluding one-time charges, of $0.64/share beating Wall Street’s expectations of $0.51/share. However, it is what lies ahead for the Tennessee-based company that has investors worried. FedEx stated that they expect earnings for its next quarter to be in the range of $0.30 to $0.45/share, a far cry from Wall Street’s forecast of $0.68/share. Many investors see the performance of transportation companies such as FedEx as bellwethers of the economy because they transport a wide variety of goods from factories to retailers and consumers. Therefore, this bleak future that FedEx has painted for itself has made investors wary of an economic recovery. This sent the iShares Dow Jones Transportation Average (IYT) down nearly 1.7% in morning trading; FDX is 9.2%.

On a positive note, there is fresh evidence that the recession has been keeping inflation in check. The Labor Department reported that the consumer price index rose a seasonally adjusted 0.1% last month, well below analysts’ expectations of 0.3%. Additionally, excluding volatile food and energy costs, core prices increased 0.1%, in line with economists’ expectations and food prices fell for the fourth straight month in May. This sent the iShares Barclays TIPS Bond (TIP) down nearly 0.2% in morning trading, despite being up 2.7% year-to-date.

Investors are also looking for insights into President Barack Obama’s plan for remaking the rules that govern Wall Street. The changes would award new powers to the Federal Reserve to supervise large financial institutions considered too big to fail. It also would establish a consumer protection agency to govern lending and credit as well as rules that would reach into unregulated regions of the financial markets. Obama states that a sound set of regulatory measures is vital to preventing a future financial crisis of this magnitude of striking again.

As the markets continue to seesaw and fears of inflation have calmed down, U.S. Treasuries rose for a fifth straight day, extending their longest rally in three months.  The previously mentioned less than anticipated rise in consumer prices will enable the Federal Reserve to keep its benchmark lending rate at its low rate, which has lead to a decline in bond yields.  In fact the yield on a 10-year note fell .03%, and it has fallen for five consecutive days.  In fact the iShares Barclays 7-10 Yr Treasury (IEF) has gained nearly 0.2% in morning trading, despite being down 7.4% year-to-date and yielding 3.91%.

To further support the notion that the Federal Reserve will keep interest rates down, they are considering using next week’s policy statement to suppress any speculation that they’re prepared to raise interest rates anytime this year, states Craig Torres of Bloomberg.

The Dow Jones Industrial Average dropped 0.2%, the S&P 500 is down 0.5% and the Nasdaq gained 0.3% in morning trading.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.