In this Nov. 23, 2020 file photo, the New York Stock Exchange is seen in New York. Stocks are opening lower, Wednesday, May 12, 2021, on Wall Street and bond yields are rising as investors reacted to a worse-than-expected increase in inflation last month. (AP Photo/Seth Wenig)
By Damian J. Troise and Alex Veiga
Inflation worries rattled Wall Street Wednesday, pulling the Dow Jones Industrial Average more than 680 points lower and placing the major stock indexes on track for their worst week in more than six months.
The selling came as investors reacted to a surprisingly big jump in inflation last month that stoked concerns that the economy may bounce back too fast from its pandemic-induced doldrums.
Tech giants, which had soared during the past year of lockdowns, took some of the biggest losses. Only energy stocks eked out a small gain.
Bond yields snapped higher after the government reported that consumer prices rose 0.8% in April, more than expected, and prices rose year-over-year at the fastest rate since 2008.
The yield on the 10-year Treasury note rose to 1.69% from 1.62% a day earlier, a big move. Bond yields rise when investors fear that an increase in inflation will erode the future value of the income that bonds pay.
“Inflation and interest rate jitters are hitting the market today, but for now the sell-off has been orderly,” said Cliff Hodge, chief investment officer for Cornerstone Wealth. “Letting some air out of these sky-high valuations is a positive going forward.”
The S&P 500 lost 89.06 points, or 2.1%, to 4,063.04, its biggest one-day drop since late February.
The Dow fell 681.50 points, or 2%, to 33,587.66, the worst decline for the blue chip index since late January. The Nasdaq gave up 357.75 points, or 2.7%, to 13,031.68. It was the tech-heavy index's largest pullback since mid-March.
Small company stocks also gave up the most ground. The Russell 2000 index fell 71.85 points, or 3.3%, to 2,135.14.
Inflation concerns have been hitting the stock market hard this week. The S&P 500, Nasdaq and Dow are on track for their biggest weekly loss since Oct. 30. The Dow and S&P 500 had set all-time highs just last Friday.
Investors have been worrying that inflation could return after being absent for many years as the economy revs out of the recession brought on by the pandemic. Federal Reserve officials and other economists have said moderate inflation may actually be a good thing in a recovery.
While the latest reading on inflation was hotter than expected, the market shouldn’t be too surprised about inflation rising, said Jeff Buchbinder, equity strategist at LPL Financial. The prevailing sentiment is that rising inflation will be temporary, though “it's too early to say whether these higher levels are going to be sustained,” he said.
Concerns about rising inflation also raise the question of whether the Federal Reserve will change its posture on maintaining low interest rates as the economy recovers. Buchbinder said investors shouldn't expect that to happen any time soon, however, given that the economy, and particularly the job market, are still a long way from being fully recovered.
“Really the Fed has one mandate right now, which is to regain full employment, and it'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 curtailing some spending, which the economy needs to sustain its recovery. The cost of new cars rose 0.5% in April, the largest increase since last July, because of heavy demand and a computer chip shortage that has slowed production and reduced dealer supplies.
Rising inflation makes stocks seem more expensive, particularly high-value tech stocks that trade on the potential for their future profits in coming years. Apple, Microsoft and Amazon all fell more than 2%.
Energy prices continued to climb following the shutdown of a major gas pipeline on the East Coast earlier in the week, and there are now reports of gasoline hoarding happening in places like North Carolina.
With real estate being a largely male-dominated industry, Stephanie Shojaee, vice president and chief marketing officer at development company Shoma Group, joined Cheddar News to discuss how she took on the gender gap for women to achieve leadership roles, starting at her own company. “It's been very important to teach all the women that work here, especially the younger ones, that they shouldn't change themselves," she said. "You need to be happy with who you are and just keep breaking barriers."
We are already starting to feel the effects of summer. Heat waves in Texas and California are already sending temperatures soaring. That could spell trouble for the nation's power supply. there are new concerns about outages in many areas of the country. Cheddar's Shannon Lanier explains the two main causes of blackouts, and what states are doing to keep the lights on and the air conditioning running.
Pinterest is making a big move as it pushes further into online shopping. The image-focused social media site is acquiring A.I.-powered shopping platform THE YES as it focuses on enhancing the user shopping experience. THE YES's technology gives users a personalized feed of products based on their preferences, and Pinterest is banking on the tech to give it an advantage among other social media apps with built-in shopping features. Julie Bornstein, founder and CEO of THE YES, joins Closing Bell to discuss the company's unique technology, why it agreed to sell to Pinterest, her vision as she takes over shopping initiatives, and more.
Keith Barr, CEO of InterContinental Hotel Group, says he is expecting an 'incredible' summer for his business as pandemic conditions have normalized and people are ready to travel.
Dann Ryan, Chief Investment Officer at Sincerus Advisory, discusses what drove markets lower on Wednesday, as well as what investors are anticipating when it comes to the upcoming CPI report and Fed decision.
U.S. stocks close Tuesday at session highs after a subpar start to the trading day. Tim Chubb, Chief Investment Officer at the wealth advisory firm, Girard, joins Cheddar News' Closing Bell to discuss. 'We're starting to see the moderation of three core things -- we've seen the moderation of prices, we've seen the moderation of wage growth we've seen in the labor market, and we've also seen a moderation of job openings,' he says.
The victims from the USA gymnastics sexual abuse scandal continue to seek justice. Survivors of Larry Nassar are seeking more than one-billion dollars from the FBI for failing to stop the convicted sports doctor when the agency first received allegations. According to a report released by the Justice Department's Inspector General, FBI agents knew
in July of 2015 that Nassar was accused of abusing gymnasts; however, Nassar wasn't arrested until December of 2016. The group that filed the claim includes Olympic medalist Simone Biles and around 90 other women. Louise Radnofsky, sports reporter at The Wall Street Journal, joins Cheddar News' Closing Bell to discuss.
A controversial professional golf tour backed by Saudi Arabia tees off on Thursday. Today, two-time Major winner Dustin Johnson announced he's resigned from the PGA Tour ahead of headlining the Saudi-backed tour, called the LIV Golf Invitation Series. The announcement comes as the PGA tour has threatened disciplinary action for its golfers who take part in the Saudi golf league event, which will also feature notable golf stars like Phil Mickelson and Sergio Garcia; however, LIV Golf's CEO, Greg Norman, told The Washington Post that Tiger Woods rejected a contract worth 'high nine digits' to play in the tour. Chris Bumbaca, reporter for USA Today Sports, joins Cheddar News' Closing Bell to discuss.
CreditCards.com senior industry analyst Ted Rossman compares the Apple Pay Later offering to similar four-step processes at Affirm and Klarna, and says this is a way for the tech giant to dive deeper into the financial industry.
