Dow Drops More Than 600 Points
May 12 2021 - 4:21PM
Dow Jones News
By Joe Wallace and Karen Langley
U.S. stocks fell Wednesday, putting the Dow Jones Industrial
Average and S&P 500 on track for their steepest three-day
declines in nearly seven months, after a sharp rise in consumer
prices heightened concerns that interest rates could be headed
higher.
The S&P 500 dropped 2.1%, while the Dow Jones Industrial
Average retreated 2%, or about 667 points. Both indexes are poised
for their largest three-day point and percentage declines since
late October. The tech-heavy Nasdaq Composite slumped 2.6%.
Investors had been watching for the Labor Department's release
Wednesday morning of data on consumer prices. That report showed
the consumer-price index jumped 4.2% in April from a year before,
the most in any 12-month period since 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.
The increase in prices was steeper than economists had
expected.
"That's starting to get investors a little bit nervous here
since we are trading still near all-time highs across the equity
market," said Tony Bedikian, head of global markets at
Citizens.
The S&P 500 on Friday notched its 26th record close of the
year. It has since fallen 4%.
Concerns that a burst of inflation may prove more intense and
long-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 jumped in response to the inflation data. The yield
on the benchmark 10-year U.S. Treasury note climbed to 1.693%, from
1.623% Tuesday -- its largest one-day yield gain since March.
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 rose 9.5% after the
sports streaming company reported that revenue more than doubled in
the first quarter and boosted its guidance. Shares of Houlihan
Lokey gained 6.2% after the investment-banking services firm
reported record revenue for its fiscal year and raised its
dividend.
In commodity markets, Brent-crude futures, the benchmark in
energy markets, rose 1.1% to $69.32 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. The Stoxx Europe 600 added 0.3%
after on Tuesday posting its biggest one-day 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%.
Write to Joe Wallace at Joe.Wallace@wsj.com and Karen Langley at
karen.langley@wsj.com
(END) Dow Jones Newswires
May 12, 2021 16:06 ET (20:06 GMT)
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