Stocks crash again on Wall Street as inflation worries rise
BEIJING – Inflation concerns rocked Wall Street on Wednesday, lowering the Dow Jones Industrial Average by more than 680 points and putting major stock indexes on track for their worst week in more than six months.
The sell-off came as investors reacted to a surprisingly large rise in inflation last month that fueled concerns the economy could rebound too quickly from the pandemic-induced slump.
The tech giants, which had soared in the last year of lockdown, have suffered some of the biggest losses. Only energy stocks registered a slight gain.
Bond yields rose after the government announced that consumer prices rose 0.8% in April, more than expected, and prices rose year over year at the fastest pace since 2008.
The yield on the 10-year Treasury bill rose to 1.69% from 1.62% a day earlier, a big step. Bond yields rise when investors fear that an increase in inflation will erode the future value of the income that bonds earn.
“Fluctuations in inflation and interest rates are hitting the market today, but for now the sale has been ordered,” said Cliff Hodge, chief investment officer at Cornerstone Wealth. “Letting some air out of these sky-high valuations is a bright spot for the future.”
The S&P 500 lost 89.06 points, or 2.1%, to 4,063.04, its biggest one-day decline since late February.
The Dow Jones fell 681.50 points, or 2%, to 33,587.66, the worst drop in the blue chip index since late January. The Nasdaq lost 357.75 points, or 2.7%, to 13,031.68. This is the biggest drop in the technology index since mid-March.
Small business stocks also lost the most ground. The Russell 2000 Index lost 71.85 points, or 3.3%, to 2,135.14.
Inflation concerns have hit the stock market hard this week. The S&P 500, Nasdaq and Dow are on track for their biggest weekly loss since October 30. The Dow and the S&P 500 hit all-time highs last Friday.
Investors fear inflation could return after being absent for many years as the economy emerges from the recession caused by the pandemic. Federal Reserve officials and other economists have said that moderate inflation may actually be a good thing in a recovery.
While the latest inflation reading was warmer than expected, the market shouldn’t be too surprised by rising inflation, said Jeff Buchbinder, equity strategist at LPL Financial. The prevailing feeling is that the rise in inflation will be temporary, although “it is too early to say whether these higher levels will hold up,” he said.
Soaring inflation is a reflection of pent-up demand in the economy, said Terry DuFrene, global investment specialist at JP Morgan Private Bank.
“This is not a repeat of the 1980s, when we had hyperinflation,” he said. “It’s not something that’s going to be permanent.”
Concerns about rising inflation also raise the question of whether the Federal Reserve will change its stance on keeping interest rates low during the economic recovery. Buchbinder said investors shouldn’t expect this to happen anytime soon, as the economy, and especially the job market, is still far from fully recovered.
“Really, the Fed has a mandate right now, which is to return to full employment, and that’s going to take some time,” Buchbinder said.
Analysts expect consumer prices to rise as the economy recovers, but higher prices could run the risk of cutting some spending, which the economy needs to support its recovery. The cost of new cars rose 0.5% in April, the biggest increase since last July, due to strong demand and a shortage of computer chips that slowed production and reduced supply to dealers. .
Rising inflation makes stocks more expensive, especially high-value tech stocks that trade on the potential of their future earnings in the years to come. Apple, Microsoft and Amazon all fell more than 2%.
Tesla fell 4.4%, bringing its decline so far this month to almost 17%. This has the electric carmaker’s stock on pace for its worst month since the pandemic plunge of March 2020, when it lost 21.6%.
Energy prices continued to climb after a major east coast gas pipeline closed earlier in the week, and there are now reports of gasoline hoarding in places like North Carolina .
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