Stocks fell Wednesday on Wall Street, led by further declines in technology companies, after a report on inflation came in worse than feared.
The early rally faded, leaving the S&P 500 down 1.6% after rocking between gains and losses in morning trading. The decline wiped out the gains made the previous day, when the benchmark index snapped a three-day losing streak.
The Dow Jones Industrial Average is down 1% and the Nasdaq Composite is down 3.2% as technology shares weighed on the broader market. All three major indices are on track for another sharp weekly loss.
Wall Street has stunned the country’s high inflation, and where it’s headed, as it caused the Federal Reserve to withdraw the support it had been underpinning the markets for most of the pandemic. The Fed turned aggressively toward raising interest rates after seeing inflation rose for longer than expected.
Wednesday’s report from the US Labor Department showed that inflation slowed slightly in April, falling to 8.3% from 8.5% in March. Investors also found some half-full signs in the data that inflation may be at its peak and set to ease further.
However, the numbers were still higher than economists’ expectations. They also showed a larger-than-expected increase in prices outside of food and gasoline prices, which economists call “core inflation” and can be more predictive of future trends.
Core inflation has been hot, and that’s what really matters for the Fed at this point,” said Brian Jacobsen, chief investment analyst at Allspring Global Investments.
Economists said the inflation report will keep the Fed on track for rapid and sharp interest rate increases in the coming months, although the data led to erratic trading on Wall Street.
Treasury yields jumped initially but pared their gains as the morning progressed. The 10-year Treasury yield rose to 3.08% but eased to 2.92% in later trade, below its level late Tuesday at 2.99%. The two-year yield, which moves more based on expectations for the Fed’s action, rose to 2.64% from 2.62% late Tuesday. It rose to 2.75% shortly after the report was released.
With yields slumping briefly, most stocks reversed their early losses, but the gains did not hold.
“Last week, any kind of gains struggled to stay,” said Ross Mayfield, investment strategy analyst at Baird. “It’s just a seller’s market right now.”
The S&P 500 fell 65.87 points to 3,935.18, while the Nasdaq fell 373.44 points to 11,364.24. Both indices recorded five consecutive weekly losses at the beginning of this week.
The Dow Jones Industrial Average fell 326.63 points to 31,834.11. The blue chip index suffered six consecutive weekly losses.
Small-cap stocks also fell. The Russell 2000 index fell 43.65 points, or 2.5%, to 1718.14 points.
To beat high inflation, the Fed has already pulled its key short-term interest rate from a record low near zero, where it spent most of the pandemic. He also said that he may continue to raise interest rates by twice the usual amount in upcoming meetings. Such moves are by design that would slow the economy in the hope of eradicating inflation.
The Fed risks causing a recession if it raises interest rates too much or too quickly. Even if it’s nimble enough to avoid deflation, higher rates drive stock prices and all kinds of investments down in the meantime. That’s because safe, high-yield Treasuries have suddenly become a stronger contender for investor dollars.
“The main market concern at this point is inflation and how the Fed is reacting to it,” said David Lefkowitz, head of equities for the Americas at UBS Global Wealth Management. “In order for the markets to feel more comfortable with the soft landing, they will focus on any of the inflation data and also any clues about how the Fed is thinking about that inflation data.”
High rates hurt the investments that have been the biggest winners from the very low rates of the epidemic. This includes big tech companies, other high-growth stocks and even cryptocurrencies. The Nasdaq’s loss of more than 27% this year is much worse than the roughly 17% decline of the S&P 500, for example.
Coinbase, the cryptocurrency trading platform, fell 26.4% after it reported much weaker results for the last quarter than analysts had expected. Drops in cryptocurrency prices affected trading volumes during the quarter.
Several other companies have made great strides after announcing their latest earnings results. Wendy’s hamburger chain fell 10.8% after it reported disappointing earnings. Callaway Golf shares jumped 10.2% and H&R Block is up 19.5% after announcing encouraging financial results.
It’s not just interest rates that are driving the markets lower. In China, lockdowns aimed at stemming the spread of COVID-19 have raised the risk of further supply chain disruptions for global companies and a slowdown in the world’s second-largest economy.
Meanwhile, the war in Ukraine threatens to keep inflation high due to turmoil in the oil and natural gas markets.
Crude oil jumped again on Wednesday, with the price of a barrel of benchmark US oil up 6% to $105.71. Brent crude, the international benchmark, rose 4.9 percent to $107.51.
That helped energy stocks in the S&P 500 climb 1.4%, the biggest gain among the 11 sectors that make up the index. Exxon Mobil shares rose 2.1 percent, while ConocoPhillips rose 1.1 percent.
Associated Press writer Ellen Kortenbach contributed to this report.