Stocks stumble lower after inflation rises again in April

NEW YORK –

Wall Street saw stocks fall Wednesday following a report about inflation that was worse than anticipated last month.

The S&P 500 was 0.6% lower after waffling between gains and losses in early trading. As tech stocks weigh down the wider market, the Dow Jones Industrial Average fell 91 points (0.3%) to 32,033.

Wall Street has become obsessed by the country’s high levels of inflation and where they are going, as it is causing the Federal Reserve’s support system to be removed from the markets. This was the case for the majority of the pandemic. After witnessing high inflation for longer than anticipated, the Fed has moved aggressively to raise interest rates.

Wednesday’s U.S. Labor Department report showed that inflation declined slightly in April from 8.5% in March. Investors also saw some encouraging signs in the data, suggesting that inflation could be at its peak and is likely to ease further.

The numbers were higher than predicted by economists. The numbers also revealed a larger increase in prices than was expected for gasoline and food, which economists refer to as “core inflation”. This can be more predictive of future trends.

“Core inflation came in hot and that’s all that matters to the Fed at present.” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

Economists saidAlthough the Fed is expected to continue its rapid and potentially dramatic increases in interest rates over the next months, the inflation report led to some erratic trading on Wall Street.

Initial jumps in Treasury yields were significant, but they retreated as the day progressed. Most stocks recovered their losses from the beginning as the yields declined.

The 10-year Treasury yield shot up to 3.08% in the second trading session, but it fell back to 2.93 in later trading. This is below its late-Tuesday high of 2.99%. The yield on the two-year Treasury, which is influenced more by Fed action expectations, rose to 2.65% late Tuesday from 2.62%. Shortly after the release of the report, it had reached 2.75%.

The Fed has already lowered its key short-term rate from near zero to curb high inflation. This was the record low it had reached during the pandemic. It also saidIt may increase rates by twice the normal amount at future meetings. In the hope of curbing inflation, such moves would slow down the economy.

If the Fed raises rates too fast or too high, it could cause a recession. Higher rates will cause stocks and other investments to drop even if the Fed manages to avoid a downturn. This is because safer, higher-yielding Treasury bonds suddenly become a stronger competitor to investors’ dollars.

“Inflation and how the Fed responds to it is the main concern of the market at this time,” saidDavid Lefkowitz is head of equity for the Americas at UBS Global Wealth Management. “Inflation data will be a key focus for the markets in order to feel more comfortable with a soft landing. They also need to know how the Fed views that data.

Higher rates are the most detrimental to investments that were among the largest beneficiaries of the extremely low rates of the pandemic. This includes large technology companies, high-growth stocks, and even cryptocurrency. The Nasdaq’s loss of roughly 25% so far this year is considerably worse than the nearly 16% drop for the S&P 500, for example.

Coinbase, a cryptocurrency trading platform, plunged 30% after reporting weaker quarterly results than analysts had expected. The quarter was impacted by the drop in crypto prices.

Other companies also made major moves after the announcement of their latest earnings results. Wendy’s hamburger chain fell 10.5% following disappointing profits. Callaway Golf jumped 12.3% and H&R Block surged 17.3% after reporting encouraging financial results.

The market is not only being driven lower by low interest rates. China’s shutdowns to stop COVID are increasing the risk of supply chain disruptions in China and slowing down the world’s second largest economy.

In the meantime, the war in Ukraine is likely to increase inflation due to disruptions to oil and natural gas markets.

Crude prices rose again Wednesday with a barrel benchmark U.S. crude oil climbing 6.6% to $106.34. Brent crude oil, which is the international standard for oil, increased 5.6% to $108.16.

That helped energy stocks in the S&P 500 jump 2.2%, by far the biggest gain among the 11 sectors that make up the index. Exxon Mobil gained 2.7% and ConocoPhillips rose 1.8%.

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AP Business Writer Elaine Kurtenbach contributed.