Wall Street has closed lower, with the Standard & Poor’s 500 suffering its biggest one-day drop since February, as inflation data fuels concerns over whether interest rate hikes from the Federal Reserve could happen sooner than anticipated.
All three major US stock indexes ended the session deep in the red following the Labor Department’s April consumer prices report which showed the biggest rise in nearly 12 years.
The report was hotly anticipated by market participants who have grown increasingly worried over whether current price jumps will defy the US Federal Reserve’s reassurances by morphing into long-term inflation.
But pent-up demand from consumers flush with stimulus and savings is colliding with a supply drought, sending commodity prices spiking, while a labour shortage drives wages higher.
Inflation fears dominate
“The topic on everyone’s mind is obviously inflation,” said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts.
“It’s something the (Federal Reserve) has been looking for and they’re finally getting their wish.”
“The question is how long will its fires run hot before starting to simmer?”
That concern is shared by Stuart Cole, head macro economist at Equiti Capital in London.
“Going forward, the big question is just how long can the Fed maintain its dovish stance in opposition to the markets,” Cole said.
“Particularly if companies begin raising wages to encourage unemployed labour back into the workforce, in turn driving a large hole in the Fed’s transitory inflation argument.”
Core consumer prices (CPI), which exclude volatile food and energy items, grew at 3.0 per cent year-on-year, shooting above the central bank’s average annual 2.0 per cent inflation growth target.
Down across nearly all sectors
The Dow Jones Industrial Average fell 681.5 points, or 1.99 per cent, to 33,587.66, the S&P 500 lost 89.06 points, or 2.14 per cent, to 4,063.04 and the Nasdaq Composite dropped 357.75 points, or 2.67 per cent, to 13,031.68.
Of the 11 major sectors in the S&P 500, 10 closed in negative territory, with consumer discretionary down most.
Energy was the sole gainer, advancing 0.1 per cent, boosted by rising crude prices.
Market-leading mega-caps including Amazon.com Inc, Apple Inc, Alphabet Inc, Microsoft Corp and Tesla Inc fell between 2.0 per cent and 3.0 per cent as investors shied away from what many feel are stretched valuations.
“The CPI number being stronger than expected has led to further weakness in tech stocks,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
“Tech investors are concerned that higher rates are going to lead to multiple compression and less attractive valuations for tech names in a higher rate environment.”
The CBOE Volatility index, a gauge of market anxiety, closed at 27.64, its highest level since March 4.
Online dating platform Bumble Inc gained in after-hours trading after posting quarterly results.
First-quarter earnings season is on the wane, with 456 constituents of the S&P 500 having reported.
Of those, 86.8 per cent have beaten consensus estimates, according to Refinitiv IBES.
Declining issues outnumbered advancing ones on the NYSE by a 6.05-to-1 ratio; on Nasdaq, a 3.84-to-1 ratio favoured decliners.
The S&P 500 posted nine new 52-week highs and no new lows; the Nasdaq Composite recorded 34 new highs and 118 new lows.
Volume on US exchanges was 11.82 billion shares compared with the 10.44 billion average over the last 20 trading days.