Fears of rising inflation hammered Wall Street on Wednesday, with grim consumer price data sparking a sell-off in blue chip and technology shares, while amplifying new concerns about the rebound from COVID-19.
A brutal drop that began early in the week congealed into a third consecutive day of losses. The Dow Jones Industrial Index, S&P 500 Index and Nasdaq all plummeted, closing more than 2% lower on the day. Tech stocks suffering their worst day since March 18, according to Yahoo Finance data, while the Dow had its worst showing since late January.
With a weekend cyber-attack sharply driving up the cost of gas nationwide — while sparking shortages — investors are growing increasingly restive that price pressures may be rousing themselves from an extended slumber. Mounting signs of supply shortages in the face of surging demand threatening to spur a rapid rise in prices.
Those fears crystallized early Wednesday, after the government reported that headline consumer prices surged by a faster than expected 4.2% last month. Excluding food and energy, prices jumped 0.9 percent in April (SA) and are up 3.0 percent over the year.
“It’s not a matter of whether inflation is going to be firming over the next couple of months ... it will,” Garrett Melson, a portfolio strategist at Natixis Investment Manager Solutions, told Yahoo Finance on Wednesday.
“The bigger story is whether we’re seeing a persistent and structural shift higher in prices,” he added.
A system-wide disruption following a cyberattack on a key energy pipeline operator has sent gasoline prices higher, accelerating an already upward-moving trend in energy prices as demand for travel and fuel resurges coming out of the COVID-19 pandemic.
The tableau of faster growth and soaring prices complicates the Federal Reserve's policy of allowing the economy to run hot — and Wall Street's willingness to take the central bank at its word.
"Regardless of what happens with inflation over the next few months, I believe the Federal Reserve is more focused on the employment part of its dual mandate and will remain accommodative for as long as it takes to ensure the economy returns to full employment," said Nancy Davis, founder and portfolio manager at Quadratic Capital Management, with roughly $3 billion in assets.
The Fed "has a dual mandate of price stability and maximum employment and I believe the Fed is ready to sacrifice the former to save the latter," Davis added.
Investors have in turn also been pondering when the Fed might step in and adjust its highly accommodative monetary policies to stave off rising inflation. Many policymakers, however, have remained of the view that the central bank needs to keep rates low and sustain asset purchases at their current, aggressive rate to support the economy, which is still emerging from a worldwide health crisis.
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4:03 p.m. ET: Stocks rocked by soaring inflation, indexes close over 2% lower; tech stocks have worst day in nearly 2 months
Here were the main moves in markets as of 4:03 p.m. ET:
Gold (GC=F): -$15.10 (-0.82%) to $1,821.00 per ounce
10-year Treasury (^TNX): +7.1 bps to yield 1.6950%
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2:30 p.m. ET: Next up, jobless claims
On Thursday, the latest read on the labor market will come with initial unemployment claims, which are expected to hold below 500,000 for a second straight week. New filings inching back toward pre-pandemic levels as more vaccinated Americans return to work and in-person activities.
Meanwhile, stocks are hunkered at the day's lows, with the Dow off over 400 points and the S&P shedding 67 points. The Nasdaq is the day's biggest loser, down over 300 points, or more than 2%.
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11:20 a.m. ET: Domino's gains as Ackman reveals stock purchase
Bill Ackman's Pershing Square Capital Management now owns about 6% of Domino's Pizza, the billionaire investor told the Wall Street Journal on Wednesday. The pizza chain is "a very compelling story and big international growth opportunity ... and there's plenty of room to run both here and abroad," Ackman told the Journal during its Future of Everything Festival event.
DPZ last traded around $427, up over 1% on the day and within shouting distance of its 52-week high at $447.50.
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11:00 a.m. ET: Stocks hit session lows as inflation fears bite
Here were the main moves in markets at Wall Street's opening bell:
9:00 a.m. ET: Faster inflation = higher yields, and a stronger dollar
The combined logic of rising prices and the resulting upward pressure on interest rates is likely to yield a stronger dollar. Capital Economics points out that the greenback:
...will strengthen a bit over the next couple of years as the economy in the US outperforms during the recovery from COVID-19 and government bond yields there generally rise faster than those elsewhere. In this environment, we expect the currencies of other economies where recoveries are likely to be swift and central banks relatively quick to begin normalizing policy, broadly in line with market expectations...
According to the firm, that's good news for key international currencies like the New Zealand's kiwi, South Korea's won and the Chilean peso, among others.
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8:50 a.m. ET: The biggest surprise in the April CPI...
Used cars in a parking lot. ·RobertCorse via Getty Images
...was a 10% (!!) surge in used car prices, translating into a staggering annualized gain of nearly 314% (yes, you read that correctly:
"The index for used cars and trucks rose 10.0 percent in April. This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase.”
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8:30 a.m. ET: Futures extend losses after CPI data
Here's where markets were trading after the numbers:
Here's where markets were trading as the overnight session kicked off:
S&P 500 futures (ES=F): 4,139.75, down 6.5 points or 0.16%
Dow futures (YM=F): 34,137.00, down 46 points or 0.13%
Nasdaq futures (NQ=F): 13,322.75, down 23.25 points or 0.17%
Trader Frank Masiello talks on his phone on Wall St. outside the New York Stock Exchange (NYSE) in New York, U.S., January 15, 2021. REUTERS/Brendan McDermid ·Brendan McDermid / reuters
