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Wall Street ends with broad sell-off on spiking inflation fears

EconomyMay 12, 2021 07:11PM ET
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© Reuters. FILE PHOTO: The front facade of the New York Stock Exchange (NYSE) is seen in New York City, U.S., May 4, 2021. REUTERS/Brendan McDermid

By Stephen Culp

NEW YORK (Reuters) - Wall Street closed lower on Wednesday with the S&P suffering its biggest one-day percentage drop since February, as inflation data fueled concerns over whether interest rate hikes from the Fed could happen sooner than anticipated.

All three major U.S. 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 U.S. 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 labor shortage drives wages higher.

"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 (Fed) 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 labor 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% year-on-year, shooting above the central bank's average annual 2% inflation growth target.

(Graphic on inflation) https://tmsnrt.rs/3we4MO7

The Dow Jones Industrial Average fell 681.5 points, or 1.99%, to 33,587.66, the S&P 500 lost 89.06 points, or 2.14%, to 4,063.04 and the Nasdaq Composite dropped 357.75 points, or 2.67%, 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%, boosted by rising crude prices. [O/R]

Market-leading mega-caps, including Amazon.com Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) Inc, Microsoft Corp (NASDAQ:MSFT) and Tesla (NASDAQ:TSLA) Inc, fell between 2% and 3% 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, close 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% 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 favored 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 U.S. exchanges was 11.82 billion shares, compared with the 10.44 billion average over the last 20 trading days.

Wall Street ends with broad sell-off on spiking inflation fears
 

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Comments (18)
Investing Man
Investing Man May 13, 2021 5:05AM ET
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Russia and saudi arabia colluded to push fuel prices up, rising the cost of everything world wide. You have to understand how fuel is deeply connected to commodities to really undertand why prices have gone up. Just look at the shortage in the southeast.
George Pichurov
George Pichurov May 13, 2021 12:10AM ET
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Don't worry, Jay promised there'll be no inflation. And Joe is concocting an administrative act to ban inflation in US.
Bipin Kochar
Bipin Kochar May 12, 2021 7:25PM ET
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Commodity prices are up due to years of under-investments and closures leaving companies with limited capacity to expand production. Governments across the world must look at expediting reopening of plants closed in past 5 years
Investing Man
Investing Man May 12, 2021 7:25PM ET
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More like embezzlement. The ceos still have their yachts and lambos. The problem is they got every tax break, benefit, and loop hole in the book and instead of improving matters they swuandered the money into their own personal bank accounts.
Aniebiet Akang
Aniebiet Akang May 12, 2021 2:56PM ET
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Rate hike is far from the picture. It's mere panic selling
Murali Brahmandam
Murali Brahmandam May 12, 2021 1:42PM ET
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Biden will show up for work in red shorts and green tie tomorrow
akljsdf askldf
akljsdf askldf May 12, 2021 1:40PM ET
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this is aha moment, 0.9% month on month is HOT
Stan Smith
Stan Smith May 12, 2021 1:27PM ET
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Rate hike? Honestly, the rigged system can's sustain any sort of hike.
Aniebiet Akang
Aniebiet Akang May 12, 2021 1:12PM ET
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Get ready, USD likely to slump in very near term. Stocks might close at green
Dave Jones
Dave Jones May 12, 2021 12:54PM ET
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LMAO!
James Watson
ProfMoriarty May 12, 2021 12:41PM ET
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And yet Gold is still in the doldrums?...Why???
John Lakran
John Lakran May 12, 2021 12:41PM ET
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BC the big cpi up is because we simply don't have enough of many items bc of shutdowns so prices have jumped since we r reopening, gave handouts to millions who are spending it but supply and demand is at work and prices are up to quell some demand
king michael
king michael May 12, 2021 12:21PM ET
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Yellen has been looking to hike FED rate since she accepted the current job. She is a very theoretical lecture person and is very incapable of dealing with real economy and monetary problems. The only thing she is capable to do is to read from text book which says "increate interest rate when there is inflation ......"
Expressions Productions
Expressions Productions May 12, 2021 12:21PM ET
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You are spot on. Besides reading books she reesesrch and consults Uni of YouTube and Professor Google for economic policy advice.
Peter Pan
Peter Pan May 12, 2021 12:19PM ET
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Rate hikes... Didn't laugh that much for a long time. Let the markets cool down a bit and JP Performance announce another "no rate hike", "we want inflation" and "do you also want some dollar" Fed announcement. A few days later, everything will bounce back.
NITISH SHAH
NITISH SHAH May 12, 2021 10:56AM ET
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Market always falls when in overbought zone.. good to see this levels for fresh buying
Investing Man
Investing Man May 12, 2021 9:58AM ET
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Im surprised at the lack of basic education by so many posters on an investing site. Must be foreigners posing as natives. Inflation is part of a healthy economy.
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Kaveh Sun
Kaveh Sun May 12, 2021 9:58AM ET
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Inflation alone doesnt mean much. Inflation is fine when the mfg produce, econ is burning hot. Otherwise, u will b in the world of pain like argentina,venezula,zimbabwe,etc
Steffen vdm
Steffen vdm May 12, 2021 9:58AM ET
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Same reason as to why markets go up on bad employment reports. No reason
craig smith
craig smith May 12, 2021 9:58AM ET
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How "healthy" was the stagnating and inflationary 1970's...healthy enough to have two recessions! Where did you get your education?
Stan Smith
Stan Smith May 12, 2021 9:58AM ET
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I suppose Hyperinflation is even healthier..lol
Zach Lohman
Zach Lohman May 12, 2021 9:58AM ET
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Some inflation is healthy for a debt based economy like the US. The problem is that once it gets going it can be hard to stop. Really, with low debt levels, inflation isn’t needed or wanted except by the gov.
king michael
king michael May 12, 2021 9:48AM ET
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Short the Tech sectors, the chance of survive   for many US tech companies especially in semiconductor is too slim. Those companies are keep losing large percent of the world market due to tight export policy, difficult to rise capital and increasing competition from EU, Japan, Korea, Taiwan ....which are enjoying a very friendly and supportive policy from their own government and are already well passed US in tech advance.
taylor jason
taylor jason May 12, 2021 9:48AM ET
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you do know there is an unprecedented demand for semi conductors right now? as well as as shortage in supply? have you seen the price of gpu lately?
Investing Man
Investing Man May 12, 2021 9:48AM ET
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New flash mr. wong (aka king michael).. you cant see it from your home in china because you are decades behind but semis have been outsourced to cheap overseas labor for decades lol
Mart Bab
Rubberduck1973 May 12, 2021 9:48AM ET
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Interest rates are not rising. This kind a messaging is begging for rates to rise but the fed is clear.
Mart Bab
Rubberduck1973 May 12, 2021 9:48AM ET
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Don’t trade against the fed
CHAD TENDIES
CHAD TENDIES May 12, 2021 9:21AM ET
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You cannot have a strong consumer economy if consumers can’t afford anything due to inflation, too much debt and rising interest rates
taylor jason
taylor jason May 12, 2021 9:21AM ET
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you can't have a strong economy when there are 8 million people unemployed. what we are seeing is supply side inflation since most manufacturers went offline during covid. inventory is rising and supply demand will balance out. there is no doubt there is inflation in the short term but what you constantly misinterpret is if short term inflation spirals to long term inflation of which there is no evidence of at this time.
Investing Man
Investing Man May 12, 2021 9:21AM ET
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Even the poorest americans on their worse day during inflation still do better than most chinese... so they can be greatful for that
Scott Bailey
Scott Bailey May 12, 2021 9:21AM ET
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taylor jason unemployed, you mean being paid to stay home! This country is a mess and it it finally showing its ulgy head
Adam Paine
Adam Paine May 12, 2021 9:21AM ET
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don't worry, the rich can still borrow cheap money. Just everyone else will have to pay a lot more for the next few years....because the cheap $ we're handing out to the wealthy (who evade taxes) But, you know...don't worry
 
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