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Stock Market Today: Dow Sinks 880 Points After Inflation Surprise

Speculation that inflation may have peaked earlier this year abruptly died with the release this morning of the latest Consumer Price Index (CPI) from the Department of Labor. And what the data showed was that prices were still rising last month.

Specifically, the CPI rose 8.6% year-on-year in May, the fastest pace since December 1981. The sharp rise in consumer inflation was across the board, but the annual increases were particularly striking in both gasoline prices (+ 50.3%) as in foodstuffs. (+11.9%). On a monthly basis, the consumer price index rose 1%, compared to April’s 0.3% price increase. Both figures were higher than economists expected.

The preliminary index of consumer confidence from the University of Michigan for June was also published this morning, which reached 50.2, 14.2% less than in May, the lowest value that this indicator has reported in decades. According to the report, 46% of those surveyed pointed to inflation as their negative outlook for the economy, up 38% from last month.

“Falling confidence means consumers are increasingly concerned about future economic conditions,” says Jeffrey Roach, chief economist at independent brokerage LPL Financial. “We need to listen to what consumers are saying, but more importantly, we need to watch what consumers are doing. We expect a slowdown in consumer spending as inflation and uncertainties weigh heavily on confidence.”

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The reports were met with strong selling on Wall Street. All 11 sectors finished in red, with discretionary consumption (-4.0%) and technology (-3.8%) suffering the greatest decreases.

Regarding the main indices, the Nasdaq Composite slid 3.5% to 11,340, the S&P 500 Index shed 2.9% to 3,900 and the Dow Jones Industrial Average he slipped 2.7% to finish at 31,392.

stock price chart 061022

Other news in the stock market today:

  • the small cap Russell 2000 it fell 2.7% to 1,800.
  • us crude oil futures it lost 0.7% to settle at $120.67 a barrel.
  • gold futures jumped 1.2% to close at $1,875.50 an ounce.
  • Bitcoin it sank 3.4% to $28,966.18. (Bitcoin operates 24 hours a day; prices reported here are as of 4 pm)
  • Netflix (NFLX, -5.1%) and Roblox (RBLX, -9.0%) posted heavy losses today after Goldman Sachs downgraded the stock to Sell. “We are downgrading NFLX to Sell because we are concerned about the impact of a consumer downturn, as well as increased levels of competition in demand trends (both in the form of gross adds and churn), margin expansion and sales levels.” content spending and we see NFLX as a show me story with a light catalyst path in the next 6-12 months,” the analysts write in a note. And while they still see RBLX as the best-positioned name for long-term growth opportunities in the gaming/interactive universe, “we have growing concerns about the post-pandemic environment and expect a continuation of slow growth, difficult comparisons and the normalization of margins in the short term”.
  • docusign (DOCU) plunged 24.5% after the electronic signature firm reported earnings. In its first quarter, DOCU reported adjusted earnings per share of 38 cents on revenue of $588.7 million. Analysts, on average, had expected earnings of 38 cents a share on $581.8 million in revenue. The company also lowered its full-year billing growth estimate to 7% to 8% from previous guidance of 15% growth at the midpoint. “DocuSign set downward guidance on a) macro headwinds (customers wary of volume expansions in all regions), b) sales execution (high turnover of sales reps) c) customers who are still digesting excess capacity (pandemic distortions are still playing out in equities) and d) a drop in rate-sensitive loan/mortgage e-signature volumes, impacting finance/real estate verticals,” says Karl Keirstead, analyst from UBSGlobalResearch. “We stand by with a Neutral rating.”

The best stocks for sky-high inflation

We’ll take a look at how the Fed will respond to today’s red-hot inflation update next week, with the central bank scheduled to reveal its latest policy decision on Wednesday afternoon.

“From the Fed’s perspective, the chase continues and more aggressive action by the Fed is likely to be needed to catch up with runaway inflation,” says Charlie Ripley, senior investment strategist at Allianz Investment Management.

“Whether this translates into more aggressive hikes this summer or a continuation of 50 basis points [a basis point is one-one hundredth of a percentage point] hikes this fall is the option for the Fed, but the overall reality for the Fed is that inflation is not under control, and they have a lot of work ahead of them in the coming months,” Ripley adds.

We have mentioned several times in this space how investors can protect portfolios against inflation. For example, gaining exposure to companies with pricing power or picking up Wall Street’s best-dividend stocks are two ways to help mitigate the effects of red-hot inflation on your portfolio.

Investors can also delve into sectors that are typically considered more “inflation-proof” than others, namely health care, consumer staples, utilities, and real estate. Here, we have selected some of the top stocks from each of these sectors to create a mini-portfolio that can withstand higher prices. Have a look.

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