Stocks saw a broad sell-off this morning as the May consumer price index (CPI) report showed that U.S. inflation was deteriorating, which was very disappointing.
CPI data showed inflation unexpectedly accelerated in May, rising 8.6% from a year earlier, the fastest pace since 1981. A month ago, a subdued April CPI report raised hopes that price increases were slowing.
In addition, the University of Michigan consumer confidence index fell to 50.2 in early June, the lowest level since the series began in the mid-1970s. Nearly half of consumers surveyed attributed their worsening outlook to rising inflation.
At midday, the S&P 500 and the Dow Jones Industrial Average (DJIA) were down about 2.5%, while the tech-heavy Nasdaq Composite was down nearly 3.5%.
Yields on government bonds rose sharply this morning, with the 2-year yield at 3% and the benchmark 10-year yield above 3%.
Today’s downtrend marks an abrupt return to the sharp and relentless losses in the first five months of 2022.
Stocks ended May largely flat after a month-end rally that helped wipe out big losses in the first three weeks of the month. The Dow Jones Industrial Average (DJIA) has fallen for eight straight weeks, its longest downtrend in nearly a century.
Major U.S. stock indexes were in or near a bear market in early June, but there is a sense that perhaps the worst of the stock market downturn is over.
Today’s losses illustrate how disappointed the market is with the CPI inflation data. After the tepid CPI data for April last month, analysts began to compile a list of economic indicators that support the inflation slowing thesis, such as: B. Mortgage applications fell, fertilizer prices fell and container freight rates fell.
“With the Fed largely on autopilot with its June and July decisions, today’s CPI data argues against a pause in September rate hikes,” said Bill Adams, chief economist at Comerica Bank.
Fed will not pause rate hikes
The stock market is prone to manic-depressive shifts, quickly turning from unfounded optimism to excessive pessimism in a day or two. This must be the reason behind the movement of the past two days.
“The fact that the dollar is strengthening means investors are looking for a safe haven, and market volatility is likely to continue,” said Jeffrey Roach, chief economist at LPL Financial.
The next Federal Open Market Committee (FOMC) meeting is scheduled for June 14-15, and markets are pricing in an 86% chance of another 50 basis point rate hike, targeting the federal funds rate between 1.25% and 1.5% . It also sees a 91.2% chance that rates will exceed 2.75% by the end of 2022.