A surprisingly big jump in inflation last month knocked the stock market lower again as investors worry that the economy may bounce back too fast from its pandemic-induced doldrums.
Tech giants, which had soared during the past year of lockdowns, took some of the biggest losses. The S&P 500 and the tech-heavy Nasdaq were flirting with their worst weekly drops since October.
Bond yields snapped higher after the government reported that consumer prices rose 0.8% in April, more than expected, and prices rose year-over-year at the fastest rate since 2008.
The yield on the 10-year Treasury note rose to 1.68% from 1.62% a day earlier. Bond yields rise when investors fear that an increase in inflation will erode the future value of the income that bonds pay.
Inflation concerns have been hitting the stock market hard this week and setting major indexes up for possibly their worst week since October.
The S&P 500 was down 1.6% at midday, extending its weekly drop to 3.5%. The tech-heavy Nasdaq was off 2.4%, and it’s now down 4.9% so far this week.
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The Dow Jones Industrial Average gave up 431 points, or 1.3%, to 33,837. The Dow and the S&P 500 reached their latest record highs last Friday.
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.
Those concerns helped send bond yields spiking earlier this year, though yields have mostly stabilized since then. Major banks were doing better than most of the market as yields rose, which allow them to charge more lucrative interest on loans. Bank of America rose 0.6% and Citigroup rose 1.2%.
Analysts expect consumer prices to rise as the economy recovers, but higher prices could run the risk of curtailing some spending, which the economy needs to sustain its recovery. The cost of cars rose 0.5% in April, the largest increase since last July, because of heavy demand and a computer chip shortage that has slowed production and reduced dealer supplies.
Rising inflation makes stocks seem more expensive, particularly high-value tech stocks that trade on the potential for their future profits in coming years. Apple, Microsoft, Facebook and Amazon were all down 2% or more.
Energy prices continued to climb following the shutdown of a major gas pipeline on the East Coast earlier in the week, and there are now reports of gasoline hoarding happening in places like North Carolina. Crude oil prices rose 1.9% and wholesale gasoline rose 1.8%. The higher prices are helping energy companies make gains as the rest of the market slips. Exxon Mobil rose 3.1% and Chevron rose 2.9%
