By STAN CHOE, DAMIAN J. TROISE and ALEX VEIGA – AP Business Writers
NEW YORK (AP) — Stocks fell on Wall Street on Wednesday, led by further declines in tech companies, after an inflation report turned worse than expected.
An early rally faded, leaving the S&P 500 down 1.6% after swinging between gains and losses in morning trading. The slide wiped out gains from the previous day, when the benchmark broke a three-day losing streak.
The Dow Jones Industrial Average fell 1% and the Nasdaq 3.2% as tech stocks weighed on the broader market. The three major indexes are each on pace for another sharp weekly loss.
Wall Street has been transfixed by the country’s high inflation and its direction as it forces the Federal Reserve to withdraw the supports it has propped up under the markets for most of the pandemic. The Fed turned decisively to higher interest rates after seeing high inflation last longer than expected.
Wednesday’s report from the US Department of Labor showed inflation slowed somewhat in April, down to 8.3% from 8.5% in March. Investors also found signals in the data that inflation could peak and continue to subside.
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Nevertheless, the numbers were still higher than expected by economists. They also showed a larger-than-expected rise in prices outside of food and gasoline, what economists call “underlying inflation” and which may be more predictive of future trends.
“Underlying inflation has come in strong, and that’s what really matters for the Fed at this point,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
Economists said the inflation report will keep the Fed on track for quick and potentially steep interest rate hikes in the coming months, although the data has led to erratic trading on Wall Street.
Treasury yields initially jumped, but pared their gains as the morning progressed. The 10-year Treasury yield climbed as high as 3.08% but fell back to 2.92% in subsequent trading, below its 2.99% level on Tuesday night. The two-year yield, which moves more on Fed action expectations, rose to 2.64% from 2.62% late Tuesday. It had spiked to 2.75% shortly after the report was released.
As yields dipped briefly, most stocks reversed early losses, but gains did not hold.
“Over the past week, any kind of gains have really struggled to hold,” 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 slipped 373.44 points to 11,364.24. Both indexes posted five consecutive weekly losses prior to this week.
The Dow fell 326.63 points to 31,834.11. The blue-chip index has racked up six consecutive weekly losses.
Small company stocks also lost ground. The Russell 2000 fell 43.65 points, or 2.5%, to 1,718.14.
To contain high inflation, the Fed has already pulled its main short-term interest rate from its all-time high near zero, where it has spent most of the pandemic. He also said he may continue to raise rates to double the usual amount at future meetings. Such moves by design would slow the economy, hoping to stifle inflation.
The Fed risks causing a recession if it raises rates too high or too quickly. Even if it’s shrewd enough to avoid a downturn, higher rates drive down the prices of stocks and all kinds of investments in the meantime. Indeed, safer, higher-yielding Treasuries suddenly become a stronger competitor for investors’ dollars.
“The main concern of the market 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 be more comfortable with a soft landing, they are going to focus on one of the inflation data and also any clue as to how the Fed is thinking about that inflation data.”
The higher rates are hurting the investments that have been the biggest winners from the pandemic’s ultra-low rates the most. This includes big tech companies, other high growth stocks, and even cryptocurrencies. The Nasdaq’s more than 27% loss so far this year is far worse than the roughly 17% drop in the S&P 500, for example.
Coinbase, a crypto-trading platform, fell 26.4% after reporting much weaker last quarter results than analysts expected. Crypto price declines weighed on trading volumes throughout the quarter.
Several other companies have made great strides after the publication of their latest results. Burger chain Wendy’s fell 10.8% after reporting disappointing earnings. Callaway Golf jumped 10.2% and H&R Block 19.5% after reporting encouraging financial results.
It’s not just interest rates that are pushing markets down. In China, closures to stem COVID increase the risk of further supply chain disruptions for global businesses and a slowdown in the world’s second-largest economy.
the war in ukrainemeanwhile, threatens to keep inflation high due to disruptions in the oil and natural gas markets.
Crude surged again on Wednesday, with a barrel of benchmark U.S. oil up 6% to settle at $105.71. Brent crude, the international standard, added 4.9% to settle at $107.51.
That helped S&P 500 energy stocks climb 1.4%, the largest gain among the 11 sectors that make up the index. Exxon Mobil rose 2.1%, while ConocoPhillips gained 1.1%.
AP Business Writer Elaine Kurtenbach contributed. Veiga reported from Los Angeles.
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