#Market Snapshot: Dow turns lower in final hour of trade as stocks retreat ahead of company earnings

What’s driving the market?

With earnings season set to get under way on Wednesday, investors are worried that executives will report that supply-chain woes and inflation are chipping away at corporate profit, which could deliver a fresh hit to Wall Street sentiment.

“There’s a lot of consternation in the market right now circling around the growth outlook as it relates to the impact from higher energy prices” and bottlenecks in the global supply chain, said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, in a Tuesday phone interview.

“That filters right into the earnings season,” he said. “Everybody is sort of on pause waiting around to hear and see” from companies on how they’re faring amid higher costs and wages.

Earnings per share for S&P 500 constituents are forecast to grow 25% in the third quarter, according to S&P Global Market Intelligence. Second-quarter EPS grew a better-than-average 89%.

Earnings Watch: Earnings are headed for an all-time high, if supply-chain and staffing woes don’t get in the way

“Many companies that move or make things have been warning of profit pressures owing to rising input costs and supply chain related production shortfalls. This is reflected in prudent analyst consensus earnings per share estimates for the third quarter,” said David Bianco, chief investment officer for the Americas at DWS.

DWS still is forecasting a 4,400 level for the S&P 500 at the end of the year.

Investors will be attuned to how companies are digesting rising costs for labor and other inputs, but the hit to margins may end up being less than feared, Tom Plumb, portfolio manager of the Plumb Balanced Fund
PLBBX,
-0.87%,
told MarketWatch.

“Historically, the best type of investment is when you get something that melds cyclical with secular changes,” he said. “The thing were going to continue to see is investment in productivity-enhancing software and equipment” and companies that will benefit will be those that succeed in taking “labor content out of their cost structure.”

Read: The 2021 stock-market highs are ‘almost certainly’ in, unless earnings clear this bar

Meanwhile, the International Monetary Fund said it now sees global growth of 5.9% this year — down one-tenth of a percent from its July forecast — and then slowing to 4.9% growth in 2022. The IMF cut its U.S. growth estimate for 2021 by 1% to 6%, its German forecast by five-tenths to 3.1% and its Canadian forecast by six-tenths to 5.7%.

“Rosy growth forecasts” are coming down, said Frank Rybinski, chief macro strategist at Aegon Asset Management, in a phone interview Tuesday. But “we don’t think the brakes are being slammed on the economy.”

In his view, the economic recovery will continue as COVID-19 cases arising from the delta variant of the coronavirus subside. “We still see above-trend growth for many quarters,” said Rybinski.

Also see: Failing to bring Covid-19 under control will cost $5.3 trillion in lost global growth over next five years, IMF estimates

The National Federation of Independent Business early Tuesday said its optimism index slipped one point to 99.1 in September, the lowest reading since March, as small-business owners remained frustrated by shortages of supplies and skilled labor.

On the labor-market front, U.S. job openings dropped to 10.4 million in August from an unprecedented 11.1 million in July, according to a government report Tuesday. A record number of workers quit in August as businesses struggle to fill jobs, MarketWatch reported.

See: ‘I quit,’ a record number of U.S. workers are telling their bosses

Which companies are in focus?

• General Motors Co.
  GM,
  +1.44%
  said it reached an agreement with Korea’s LG Electronics Inc.
  066570,
  +3.33%
  over the costs of recalling Chevrolet Bolt electric vehicles and electric utility vehicles due to manufacturing defects in battery modules that LG supplied to GM. Shares of GM rose 1.5%.

• Shares of Matson Inc.
  MATX,
  +8.19%
  jumped almost 8% after the shipping company late Monday said that increased demand for its shipping services will lead to greater-than-expected profit. Matson added a second shipping route from China to Southern California in May 2020, then another one to Northern California earlier this year, known as the CCX.

• Signet Jewelers Ltd.
  SIG,
  -1.16%
  announced the $490 million acquisition of Charlotte, N.C.-based Diamonds Direct USA Inc., a jewelry retailer that is “off-mall” and adds to Signet’s bridal business. Signet shares fell more than 1%.

• CarMax Inc.
  KMX,
  +1.73%
  said Tuesday it planned to hire 3,700 employees by the end of the year. Shares were up about 2%.

What are other markets doing?

• The yield on the 10-year U.S. Treasury note
  TMUBMUSD10Y,
  1.579%
  fell about 3 basis points to 1.58%. Yields and debt prices move in opposite directions.

• The ICE U.S. Dollar Index
  DXY,
  +0.20%,
  a measure of the currency against a basket of six major rivals, edged up 0.2% to 94.52.

• U.S. oil futures edged higher, with the benchmark
  CL00,
  +0.09%
  up 0.2% after closing above $80 a barrel on Monday for the first time in nearly seven years. Gold futures
  GC00,
  +0.34%
  rose 0.2% to settle at $1,759.30 an ounce.

• The Stoxx Europe 600
  SXXP,
  -0.07%
  closed 0.1% lower, while London’s FTSE 100
  UKX,
  -0.23%
  fell 0.2%.

• The Shanghai Composite
  SHCOMP,
  -1.25%
  dropped 1.2%, while the Hang Seng Index
  HSI,
  -1.43%
  fell 1.4% in Hong Kong and Japan’s Nikkei 225
  NIK,
  -0.94%
  lost 0.9%.

—Steve Goldstein contributed to this article.