Stocks Slide on Inflation Data, Extending Decline
May 12 2021 - 10:35AM
Dow Jones News
By Joe Wallace
U.S. stocks fell Wednesday, extending their recent declines
after fresh data that showed the rise in consumer prices picked up
speed in April.
The S&P 500 dropped 0.7%, after starting the week with its
biggest two-day decline since early March. The Dow Jones Industrial
Average slipped 0.5%, or about 181 points, while the tech-heavy
Nasdaq Composite retreated 1.1%.
The consumer-price index jumped 4.2% in April from a year
before, the Labor Department said Wednesday, the highest 12-month
level since the summer of 2008.
The index measures what consumers pay for goods and services
such as clothes, restaurant meals and vehicles. Core prices, which
exclude the volatile categories of food and energy, rose 3% from a
year earlier.
Concerns that a burst of inflation may prove more intense and
longer-lasting than investors had expected sharpened focus on the
data. Signs of mounting inflation have weighed on stocks this week.
Rising commodity markets, supply-chain blockages and hiring
difficulties have prompted some investors to expect a prolonged
upswing in consumer prices.
That could lead the Federal Reserve to raise its target for
short-term interest rates sooner than it has signaled, potentially
weighing on stocks and other assets that have benefited from over a
year of near-zero borrowing costs. For their part, several Fed
officials have said the economy still needs support from low
rates.
Bond yields rose in response to the inflation data. The yield on
10-year U.S. Treasury notes climbed to 1.670%, from 1.623% Tuesday.
Yields rise as bond prices fall.
A quicker pace of inflation has generated worries that the Fed
will pare back its efforts to stimulate the economy through low
rates and bond-buying, according to Edward Park, chief investment
officer at U.K. investment firm Brooks Macdonald.
"Clearly this is the news that markets had started to fear last
week when the U.S. employment number came out," said Mr. Park.
Higher inflation adds to evidence that a slowdown in hiring stemmed
from difficulties finding workers as opposed to lower demand for
employees, he added.
Other factors have also knocked down stocks in recent days,
including signs that the U.S. economy -- while still expanding at a
fast clip -- has passed its peak rate of growth, said Anna
Stupnytska, global economist at Fidelity International. The market
was also vulnerable after a steep run-up in prices at the start of
the year.
"The main worry is that...because of inflation moving higher,
central banks will start tightening," Ms. Stupnytska said. She
thinks U.S. inflation will subside next year and that the Fed won't
hike rates until well into 2023. Still, multiasset funds at
Fidelity International have bought Treasury inflation-protected
securities, gold and industrial metals as a hedge against
inflation.
Among individual stocks, shares of FuboTV surged 20% after the
sports streaming company reported that revenue more than doubled in
the first quarter and boosted its guidance. Wendy's shares added
2.6% after the fast-food chain said its profit rose for the first
quarter and raised its dividend.
In commodity markets, Brent-crude futures, the benchmark in
energy markets, rose 1.4% to $69.50 a barrel. The glut of crude and
oil products that built up near the start of the pandemic has
mostly cleared in members of the Organization for Economic
Cooperation and Development, the International Energy Agency said
in a monthly report.
Overseas markets were mixed. Gains for telecom stocks helped to
push the Stoxx Europe 600 up 0.5% after the index on Tuesday posted
its biggest fall since December.
In Asian markets, Taiwan's Taiex tumbled 4.1% after the
government tightened coronavirus restrictions. Japan's Nikkei 225
fell 1.6%, while China's Shanghai Composite rose 0.6%.
Karen Langley contributed to this article.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
May 12, 2021 10:20 ET (14:20 GMT)
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