The Atlanta Journal-Constitution
Inflation news sends U.S. stocks tumbling
Stocks pulled back again on Wall Street after a surprisingly big jump in inflation last month worsened worries among investors that the economy may run too hot as it bounces back from its pandemic-induced recession. Tech giants, which had soared during th
■ PRICES: U.S. consumer prices climbed in April by the most since 2009, topping forecasts and intensifying the debate about how long inflationary pressures will last.
■ STOCKS: The news rattled markets, with the Dow Jones industrial average falling more than 680 points while the S&P 500 dropped 2.1%, the index’s worst three-day performance since October.
What happened
The S&P 500 lost 2.1% Wednesday, bringing its drop so far this week to 4% — after the government reported that consumer prices for goods and services surged 0.8% in April, the largest monthly jump in more than a decade, with the year-over-year increase reaching its fastest rate since 2008.
The tech-heavy Nasdaq shed 2.7% and is now down more than 5% so far this week. The Dow Jones Industrial Average lost 2%.
Also, bond yields snapped higher. The yield on the 10-year Treasury note rose to 1.69% from 1.62% a day earlier, a big move.
Bond yields rise when investors fear that an increase in inflation will erode the future value of the income that bonds pay.
Wednesday’s report from the Labor Department showed sharply higher prices for everything from food and clothes to housing.
A 10% surge in the prices of used cars and trucks — a record jump — accounted for roughly one-third of last month’s overall increases.
What it means
Investors have been worrying that inflation could return after being absent for many years as the economy revs out of the recession brought on by the pandemic. Federal Reserve officials and other economists have said moderate inflation may actually be a good thing in a recovery.
What risks lie ahead?
While the latest reading on inflation was hotter than expected, the market shouldn’t be too surprised about inflation rising, said Jeff Buchbinder, equity strategist at LPL Financial. The prevailing sentiment is that rising inflation will be temporary, though “it’s too early to say whether these higher levels are going to be sustained,” he said.
Concerns about rising inflation also raise the question of whether the Federal Reserve will change its posture on maintaining low interest rates as the economy recovers. Buchbinder said investors shouldn’t expect that to happen anytime soon, however, given that the economy, and particularly the job market, is still a long way from being fully recovered.
Higher prices could run the risk of curtailing some spending, which the economy needs to sustain its recovery.