Stocks Drop 2% as Inflation Jumps

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The market had one of its worst sessions of the year on Wednesday as economic data showed inflation is rising faster than expected, which is pretty much the last thing investors wanted to hear even if it isn’t much of a surprise.

Couldn’t you just feel that the CPI was going to be a big deal today? Consumer prices soared 4.2% in April year over year, which jumped past expectations of around 3.5%. Core CPI (which excludes food and energy) rose more than forecasts at 3%. Results on a monthly basis also spiked.

Despite the Fed’s numerous reiterations that rates would stay near zero for the foreseeable future, skittish investors have found it hard to believe such dovish talk in this hot market.

The NASDAQ plunged 2.67% (or about 357 points) to 13,031.68. This marks the second plunge of more than 2% this week as the market is giving the cold shoulder to growth names like tech.

All of the FAANGs were sharply lower, especially Alphabet (NASDAQ:GOOGL) (GOOG, -3.02%). Meanwhile, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) were each down by 2% or more. Microsoft (NASDAQ:MSFT) was off by nearly 3%.

The S&P slipped 2.14% to 4063.04, while the Dow plunged just under 2% (or about 680 points) to 33,587.66. The last time the index dropped more than 600 points was back in January.

“Inflation is here and it’s not transitory as the Fed suggests. Another print like that and the Fed will have to admit that and look to raise rates,” said Jeremy Mullin in Counterstrike.

Tomorrow will likely be the busiest day of this week. We’ll have our fair share of data with PPI and jobless claims being released. But it’ll also be a big earnings day with Alibaba (NYSE:BABA) coming before the bell and Disney (DIS) releasing after the close.

Today's Portfolio Highlights:

Home Run Investor: Tech stocks won’t go down forever and the chip shortage will be ending soon, so Brian thought this was a good time to add Ultra Clean Holdings (NASDAQ:UCTT) to the portfolio. This Zacks Rank #1 (Strong Buy) develops and supplies critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. The past four quarters have all been beats for UCTT with an average surprise of 26.8% in that time. The editor believes a forward PE of 12x is “super low for a tech name that grew 30% in the most recent quarter”. Looking forward, the topline is expected to grow 42% for the full year. Brian thinks the stock will return to its highs by the end of the year. Read the full write-up for more on this new addition.

TAZR Trader: Growth stocks are in the midst of a “valuation re-set” right now, which means names across the spectrum are getting shellacked. That includes a software-as-a-service company like BigCommerce (BIGC). However, the company’s ARR (annual revenue run-rate) growth continues to escalate, which helped convince two firms to upgrade the stock as part of their re-evaluations. Therefore, Kevin decided to add more to his BIGC position on Wednesday. Read the full write-up for more.

Zacks Short Sell List: It's no surprise that this portfolio dominated the top performers on Wednesday. The service was made for selloffs like today! All 10 of the portfolio’s holdings declined in the session, half of them by more than 3% - StoneCo (STNE, +4.87%), Twitter (TWTR, +4.12%), NovoCure (NASDAQ:NVCR, +3.66%), China Lodging Group (HTHT, +3.47%) and Chegg Inc (NYSE:CHGG, +3.27%). By the way, the short in TWTR is now the best performer over the past 30 days with a gain of 28.45%. Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide.

Options Trader: "The catalyst that everyone is pointing to is the inflation report we got this morning. Quite frankly, none of this should come as a surprise. Everyone has been saying we're going to see an uptick in inflation. In fact, it's desired.

"However, when you add the CPI report to an already uneasy market given the run-up in gas prices, the rising tensions in the Middle East, and last week's disappointing employment report, the market was ripe for a pullback. And that's what we're seeing now.

"These types of pullbacks are never fun. But they are healthy nonetheless. And it will give people a chance to pull profits. And ultimately pick up stocks at cheaper prices to position themselves for the next leg up.

"Make sure you keep focused on the big picture. Remember, people are talking about inflation because they are expecting the economy to accelerate. Because they are expecting to see full-year GDP come in at the fastest pace in 36 years or greater. Those things are bullish." -- Kevin Matras

Until Tomorrow,
Jim Giaquinto