Wall St. drops as inflation data fuels rate hike bets

Wall Street’s major indexes fell on Wednesday after stronger-than-expected inflation data stoked worries of tighter monetary policy to combat what many investors fear could be a prolonged period of inflation.

The Labor Department’s data showed US consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints. In the 12 months through April, the CPI shot up 4.2%, from a low base last year.

US money markets moved fully to price in a 25 basis point interest rate hike by December 2022 after the data, while yield on 10-year Treasury notes jumped to a two-week high of 1.690%.

Among mega-caps, Facebook Inc, Amazon.com Inc , Apple, Google-parent Alphabet Inc and Microsoft Corp fell between 1.8% and 3.3% as prospects of higher rates dampened demand for the high valuation stocks.

The tech-heavy Russell 1000 growth index shed 2.2%, widely underperforming the value counterpart’s 0.9% drop, which is more geared towards economically-sensitive financials and energy stocks.

Rising commodity prices and signs of labor shortage have fueled worries over rising prices, triggering a selloff that sent the S&P 500 nearly 3% below its record closing high on Friday, even as the Fed reassured that any price pressure would be transient.

It will be “some time” before the US economy is healed enough for the Federal Reserve to consider pulling back its crisis levels of support, Fed Vice Chair Richard Clarida said on Wednesday.

At 11:55 a.m. ET, the Dow Jones Industrial Average was down 405.84 points, or 1.18%, at 33,863.32, the S&P 500 was down 61.25 points, or 1.48%, at 4,090.85. The Nasdaq Composite was down 300.63 points, or 2.25%, at 13,088.79. (Reuters)