The stock market is falling on Friday after the latest consumer price index showed that inflation remains a major problem. Bets that the Federal Reserve will remain aggressive in raising interest rates are back.
In midday trading, the
Dow Jones Industrial Average
it fell 823 points, or 2.6%. the
fell 2.9%, while the
lost 3.6%. The indices were little changed until the inflation data came out.
The consumer price index rose 8.6% annually in May, the Labor Department reported on Friday, higher than the expected increase of 8.3% and April’s result of 8.3%.
“The ‘peak inflation’ debate may be premature,” wrote Nancy Davis, founder of Quadratic Capital Management.
Some of the high inflation was driven by price increases that were particularly sharp in the services sector, which accounts for the slight majority of the CPI. Consumers are shifting their spending away from goods they had purchased for their homes during the pandemic and toward experiences they can have as the world reopens. Airfare prices increased 38% year over year, while hotel prices rose 19%.
Markets expected to see a decline in inflation. A quick drop would have meant that the Fed would be more likely to slow the pace of interest rate hikes. Markets had recently experienced a few days of hope that the Fed might soon slow down by raising rates.
That narrative seems dead for the moment.
The bond market agrees. The 2-year Treasury yield, which attempts to forecast the level of the fed funds rate a couple of years from now, rose to 3% from 2.85% minutes before the inflation result hit the wires. . It is now at a multi-year high.
“The market is pricing in a slightly more aggressive Federal Reserve,” wrote Hugh Nickola, head of fixed income at GenTrust.
That is making the stock market nervous. The higher rates are meant to cool economic demand, meaning analysts could soon revise earnings estimates lower.
Now, the market seems to be in a bad situation.
Friday’s declines come even after the indices sold off on Thursday afternoon, with the Nasdaq and S&P 500 each down more than 2% for the day.
That selloff sent the S&P 500 below a key level on Thursday, which appears to have opened the door for more losses. The index had attracted buyers around the 4070 level for about 10 trading days before Thursday’s selloff. When the index fell below that level, a small panic ensued. With continued selling on Friday, the index is now just above 3900.
In fact, the level of panic seen at the end of the week has not been this high since the early days of Covid-19. The S&P 500 advanced for the second day in a row down 2%, something it hasn’t done since the two days ending March 23, 2020, according to Dow Jones Market Data.
The only seed of good news: The S&P 500 is still above its intraday low for the year of just over 3,800, hit on May 20. Traders expect the index to hold above that level when the markets open on Monday. If it does, maybe the full panic won’t come back.
Here are some stocks in motion on Friday:
(ticker: DOCU) shares fell 25% after the company lowered its quarterly outlook. Management expects the key billing metric to be $2.531 billion at the midpoint of the range for fiscal 2023. That’s down from previous guidance of just over $2.7 billion. The company also said turnover in its sales force is driving the company to expend energy on recruiting.
advanced micro devices
(AMD) shares initially rose, then fell 3.6% after analysts at KeyBanc said the company’s Investor Day forecast that it could grow revenue 20% a year was plausible, and that shares warrant a higher valuation than their peers.
(CS) decreased by 4.8%, after denying that
(STT) would take over the Swiss bank. State Street, which also denied the market rumor, saw its shares fall 2.4%.
(TSLA) shares fell 4.4% after analysts at Barclays said electric vehicle deliveries are likely to fall below expectations in the second quarter due to the closure of
factory in China due to Covid-19 restrictions.
(NFLX) shares fell 4.9% after Goldman Sachs downgraded them to Sell from Neutral.
Email Jacob Sonenshine at firstname.lastname@example.org and Jack Denton at email@example.com