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Dow books worst 5-day losing streak since 2020 as hot inflation reading weighs on Wall Street

MarketWatch logo MarketWatch 5/11/2022 Joy Wiltermuth
© Frederic J. Brown/Agence France-Presse/Getty Images
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CORRECTION: This article has been updated to correct the annual inflation figure for March.


Video: Wall Street tumbles as investors fret over bigger Fed rate hikes (Reuters)

Stocks finished lower Wednesday, with the Dow booking its biggest 5-day drop in almost two years, following an eagerly awaited consumer price index reading that showed U.S. inflation slowed less than anticipated in April.

How did stock indexes end?
  • The Dow Jones Industrial Average fell 326.63 points, or 1%, ending at 31,834.11 after swinging rising 423 points at its session high. Its 6.5% loss over the past five days was its biggest such drop since June 15, 2020, according to Dow Jones Market Data.
  • The S&P 500 shed 65.87 points, or 1.7%, closing at 3,935.18
  • The Nasdaq Composite fell 373.44 points, or 3.2%, finishing at 11,364.24.

On Tuesday, the Dow industrials fell 0.3% to close at 32,160.74. The S&P 500 snapped a three-day losing streak with a gain of 0.2%, while the Nasdaq Composite advanced 1%.

What drove markets?

Stock closed lower in choppy trade, as Wall Street attempted to parse the effects of inflation data that showed April consumer prices rose at an 8.3% annual pace, slowing from a more-than-40-year high of 8.5% in March.

The reading, however, was above the 8.1% pace expected by economists surveyed by The Wall Street Journal and underscored that inflation continues to run at a torrid pace. The so-called core rate of inflation, which omits food and energy, also rose by a somewhat stronger 0.6%. Wall Street had forecast a 0.4% increase. The increase in the core rate over the past year also slowed to 6.2% from from a 40-year high of 6.5% in March.

“I just think people don’t know what to make of this,” Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research, said of stock volatility following the inflation reading.

“We know the Fed’s hiking cycle has begun,” Frederick said, adding that it’s “difficult to have a feeling that we are at a market bottom,” with the size of future rate hikes — and their ending point — still a moving target.

The data prompted President Joe Biden to again highlight his administration’s efforts to fight inflation, while speaking at an Illinois farm on Wednesday. It also reinforced expectations for the Fed to continue on an aggressive path of rate hikes and policy tightening. But it provided little salve to families already facing high costs at the grocery store and gas pump, or to investors burned by its effects in markets.

Read: What’s next for markets after inflation data fails to deliver ‘watershed moment’

“If the Fed with its access to real-time information and legions of staff Ph.D economists can’t confidently predict inflation rates, neither can anyone else,” Scott Knapp, chief market strategist at CUNA Mutual Group, said in emailed comments. 

“It erred when it implied it could. Investors took their word for it and acted based on misplaced belief. This might seem like water under the bridge, but the implications of overconfidence live on,” he said.

See: Larger Fed rate hikes are likely on the table at next few meetings following April’s CPI, Jefferies says

Energy stocks rose 1.4%. Oil futures jumped, with the U.S. benchmark closing up 6% to $105.71 a barrel after reports that COVID cases were easing in Beijing and Shanghai, driving hopes for an easing of restrictions and pressure on the global economy.

Separately, data showed China’s consumer-price index rose 2.1% in April from a year earlier, picking up from March’s 1.5% increase. The U.S. also posed a record $308 billion budget surplus in April as federal tax receipts surged, putting the government on a path to register a budget deficit in fiscal 2022 below $1 trillion for the first time since the start of the pandemic.

Treasury yields were mixed after the data, with that of the 10-year note down 7.2 basis points to 2.918%. Rates volatility has led to a brutal start to the year for fixed income investors, putting total returns deeply in the red for most asset classes.

Read: Corporate America’s debt sinks to lowest prices since 2008. Could it be a canary in the coal mine?

Which companies were in focus?
  • Netflix Inc. shares closed 6.4% lower in the wake of a New York Times report detailing plans by the streaming giant to launch an ad-supported pricing tier and crack down on password sharing.
  • Duke Realty Corp. shares gained 7.8% after the company called the latest buyout offer from Prologis Inc. insufficient.
  • Moderna Inc. on Wednesday said its chief financial officer had departed the company just two days after taking up the position, following the disclosure of an internal probe into financial reporting at his former employer. Shares fell 6.7%.
  • Coinbase Global Inc. shares dropped 26.4% as the crypto trading app reported worse-than-forecast revenue on declining volume.
  • Rivian Automotive Inc. shares fell 9.6% after Ford Motor Co. disclosed in a Form 4 filing late Tuesday that it sold 8 million of the electric vehicle maker’s shares in the open market on May 9, at a price of $26.80, to raise $214.4 million. Rivian’s stock had tumbled 20.9% to a record low of $22.78 on May 9, after CNBC had reported over the weekend that Ford was planning to sell 8 million Rivian shares. Ford shares lost 3.9%.
  • Switch Inc. stock rose 9.1% on news that DigitalBridge Group Inc. has offered to buy the technology group in a cash deal valued at $11 billion.
  • Perrigo PLC shares rose 2.9%, despite the personal self-care product maker swinging to a first-quarter loss, missing estimates.
  • Krispy Kreme Inc. shares rose 3.8% after the doughnut seller reported forecast-beating profit and revenue and affirmed its full-year outlook.
How did other assets trade?
  • Gold futures  rose 0.7% to settle at $1,853.60 an ounce.
  • The Stoxx Europe 600  closed up 1.7%, while London’s FTSE 100  advanced 1.4%.
  • The Shanghai Composite  rose 0.7%, while the Hang Seng Index gained 0.9% and Japan’s Nikkei 225   was up 0.1%.

—Barbara Kollmeyer contributed to this report

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