Stocks break two-day winning streak as inflation concerns persist

U.S. stocks dropped on Wednesday, with the S&P 500 and Dow giving back gains after rising for back-to-back sessions.

The S&P 500 fell over 1% on Wednesday, while the Dow and S&P 500 both lost more than 0.7%. The small-cap Russell 2000 was the day's biggest laggard, falling over 1.5% at session lows. All three major averages had kicked off this week with gains, rising on both Monday and Tuesday.

West Texas intermediate crude oil prices (CL=F) rose above $122 per barrel to reach the highest level since February, and the benchmark U.S. 10-year Treasury yield resumed its climb above 3%.

Shares of Scott's Miracle-Gro Company (SMG) sank after the company became one of the latest retailers to slash guidance after building more inventory than its end users were demanding.

Individual gainers on Wednesday included streaming company Roku (ROKU), which gained over 9% following a report from Insider that suggested Netflix (NFLX) could explore a bid for the company.

Spotify (SPOT) shares also gained over 6% after the company's investor day.

Despite the early-week advances, the major U.S. stock indexes have remained choppy overall as investors weighed individual company warnings on inflation and the macroeconomic backdrop against policymakers' efforts to bring down elevated prices.

The Federal Reserve remains in a quiet period ahead of its forthcoming policy-setting meeting next week, which is overwhelmingly expected to set the stage for the central bank to roll out a second 50 basis-point interest rate hike.

And other policymakers also reaffirmed that cooling red-hot inflation pressures remains a key priority. U.S. Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and reaffirmed that she saw price increases as being driven by Russia's war in Ukraine, the pandemic-era shift to goods purchases, and ongoing supply chain issues.

"Watching the market ... as it teeters between inching ahead and pulling back, suggests that until there's a more definitive reading on the inflation front coupled with the Fed's thinking on further rate hikes in September, we can expect this bounce back and forth," Quincy Krosby, chief equity strategist for LPL Financial, said in an email.

"Given the uncertainty the market has to discount, and not the least how corporate earnings will fare as the economy slows further, having a market that wobbles a bit before it makes up its mind is probably the healthiest course, at least for now," Krosby added.

The Bureau of Labor Statistics is poised to release its latest Consumer Price Index on Friday, which is expected to show inflation eased only marginally in May from April's elevated 8.3% rate. Consensus economists are looking for headline inflation to rise at a 8.2% annual rate for May, and by 5.9% excluding food and energy prices.

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4:02 p.m. ET: Stocks break winning streak on Wednesday

Here were the main moves in markets at the close of trading on Wednesday:

• S&P 500 (^GSPC): -44.96 (-1.08%) to 4,115.72

• Dow (^DJI): -269.76 (-0.81%) to 32,910.38

• Nasdaq (^IXIC): -88.96 (-0.73%) to 12,086.27

• Crude (CL=F): +$3.02 (+2.53%) to $122.43 per barrel

• Gold (GC=F): +$3.50 (+0.19%) to $1,855.60 per ounce

• 10-year Treasury (^TNX): +5 bps to yield 3.0290%

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11:46 a.m. ET: Roku shares soar on reports Netflix is in talks to acquire the company

Shares of Roku (ROKU) jumped more than 12% intraday on Wednesday amid speculation that the company was holding talks to be acquired by Netflix (NFLX). Netflix shares also rose intraday.

Insider first reported Wednesday that internal discussions for the deal were taking place. Spokespeople at both Roku and Netflix told Yahoo Finance that they would not comment on rumors or speculation.

Some major Wall Street firms have already cast doubt on such a tie-up, however. In a note Wednesday morning, JPMorgan's Cory Carpenter and Doug Anmuth called the acquisition "highly unlikely," as it would usher in a massive shift to ad-supported video content at Netflix.

"NFLX’s ad efforts are still in the very early stages," the analysts wrote. "We’d be surprised if NFLX made an acquisition of this magnitude, essentially shifting the platform from no ads to ‘all-in’ on AVOD over the span of a few months. We do not think this would be well received by NFLX shareholders."

"We think it’s more likely that NFLX builds its ad offering on its own or through smaller M&A deals—similar to its gaming effort," they added.

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10:04 a.m. ET: Scotts Miracle-Gro is the latest company to cut its outlook

Lawn giant Scotts Miracle-Gro (SMG) mowed down its guidance on Wednesday.

In a release before the market open, Scotts cut its outlook for sales and profits for 2022 citing, among other factors, "a fluid and rapidly evolving market."

Shares of Scotts were down as much as 8% in early trading.

The company now expects adjusted earnings to be between $4.50-$5.00 per share.

In its report released May 3, the company said its prior full-year EPS forecast for $8.00 per share "is likely unattainable." With this most recent update, Scotts is forecasting full-year adjusted EPS of roughly half that prior target.

Last month, Scotts cited "lousy" weather in most markets as having a negative impact on sales, though the company said Wednesday some of this softness has rebounded.

"While there remains enough time in the year to see continued improvement in our controls and gardening categories, that is not likely to be the case with most of the products in our lawn care portfolio," Scotts said Wednesday.

Moreover, Scotts also said its retail partners — think national outlets like Home Depot (HD) or Tractor Supply (TSCO), as well as your local gardening shop — did not replenish orders over the last few weeks at the rate the company might've hoped.

"In fact, retailer orders were more than $300 million below our plans for the month in the U.S. Consumer segment alone," the company said. "This surprising trend has put significantly greater pressure on our fixed cost structure that, when coupled with the commodity cost increases we have experienced since the start of the war in Ukraine, will cause us to fall well short of the revised financial targets we established in March."

"The changes we have seen since our last public comments in early May are clearly not what we would have expected,” Scotts CEO Jim Hagedorn said. "The revised guidance we are providing is our best estimate of where things currently stand in a fluid and rapidly evolving market. While we are striving to deliver the best outcome for fiscal 2022, our focus is shifting toward the future. We are committed to taking decisive steps to improve our margins and cash flow in fiscal 2023 and get the business back to a level of performance that our shareholders rightfully expect."

With this release, Scotts becomes just the latest big company to revise its outlook and say, in essence, it isn't quite sure where things are headed. And second quarter earnings season is still over a month away.

—Myles Udland, senior markets editor

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9:32 a.m. ET: Stocks open lower, holding onto overnight losses

Here were the main moves in markets as of 9:32 a.m. ET:

• S&P 500 (^GSPC): -27.54 (-0.66%) to 4,133.14

• Dow (^DJI): -225.92 (-0.68%) to 32,954.22

• Nasdaq (^IXIC): -65.15 (-0.54%) to 12,110.08

• Crude (CL=F): +$0.90 (+0.75%) to $120.31 a barrel

• Gold (GC=F): +$4.50 (+0.24%) to $1,856.60 per ounce

• 10-year Treasury (^TNX): +5 bps to yield 3.0220%

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7:07 a.m. ET: Stock futures decline

Here's where markets were trading before the opening bell Wednesday morning:

• S&P 500 futures (ES=F): -12.5 points (-0.3%) to 4,146.25

• Dow futures (YM=F): -123 points (-0.37%) to 32,042.00

• Nasdaq futures (NQ=F): -17.5 points (-0.14%) to 12,694.00

• Crude (CL=F): +$1.27 (+1.06%) to $120.68

• Gold (GC=F): -$2.60 (-0.14%) to $1,849.50 per ounce

• 10-year Treasury (^TNX): +3.9 bps to yield 3.009%

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7:00 a.m. ET: Mortgage applications index falls for fourth straight week, reaching lowest level in over two decades

U.S. mortgage applications slid further last week as elevated home prices and rising interest rates dragged purchase and refinancing activity to the lowest level in over two decades.

The Mortgage Bankers Association's weekly market composite index tracking mortgage loan application volume sank 6.5% during the period ending June 3. This represented a fourth consecutive weekly decline and extended a 2.3% drop from the prior week. Refinance applications fell 6% week-on-week and by 75% compared to the same time last year. Purchases, meanwhile, fell 7% from the prior week, and on a seasonally unadjusted basis, were lower by 21% compared to last year.

“Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years. The 30-year fixed rate increased to 5.4% after three consecutive declines. While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity," Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a press statement.

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months," Kan added. "These worsening affordability challenges have been particularly hard on prospective first-time buyers.”

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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