Inventory losses accelerate at close after inflation turns hotter than expected

US stocks fell sharply on Wednesday afternoon as investors digested a key report on the state of US inflation, which turned out to be hotter than expected for most major indicators.

The S&P 500 fell more than 1.5%, erasing earlier gains of up to 1.2%. The index stood at 3,935.18, its lowest level since March 2021. The Nasdaq fell more than 3%, to end at 11,364.24, while the Dow fell a little more than 1% to close at 31,834.11. Treasury yields returned to their earlier gains and the benchmark 10-year yield fell back below 3%.

The moves came on the heels of April’s Labor Department Consumer Price Index (CPI), which offered an update on price increases across the U.S. economy. Although the report showed some deceleration in inflation from March, the rate of price increases is well above many economists’ estimates.

The CPI rose 8.3% in April from a year ago, retreating only slightly from March’s 8.5% increase. It was the fastest pace in about 40 years. Consensus economists were expecting an 8.1% rise in April, according to Bloomberg.

Much of this deceleration is the result of moderating energy prices. But excluding the volatile food and energy categories, the core CPI only slowed slightly in April compared to March. Core CPI rose 6.2% last month from a year ago, after rising 6.5% in March. It was also hotter than the expected 6.0% rise.

The latest inflation data helps determine how far the Federal Reserve will need to go to raise interest rates and tighten monetary policies to rein in rising prices. Uncertainty about the Fed’s next steps — and whether those steps will reduce inflation while avoiding triggering a recession — has sparked heightened volatility in risk assets, sending the S&P 500 down nearly 17% compared to its recent high of January 3. Stocks briefly fell on Tuesday afternoon after Cleveland Fed President Loretta Mester said she saw the case for a 50 basis point interest rate hike at the next two meetings of the Fed. the Fed, while leaving the door open for a potentially even bigger rate hike of 75 basis points.

“We’re going to see more volatility. It’s not going to be an easy road because we still have a lot of unknowns,” Omar Aguilar, CEO of Schwab Asset Management and chief investment officer, told Yahoo Finance Live on Tuesday. “There is still a lot of uncertainty in many areas, not just in the macroeconomic and economic structure, but also just geopolitically, things that have not been resolved, such as the war in Ukraine as well as the situation of COVID in China.”

Others have also suggested that investors should prepare for greater short-term volatility.

“We finally started to see signs of panic over the last week, obviously late last week and Monday,” Scott Brown, technical market strategist at LPL Financial, told Yahoo Finance Live on Tuesday. “But we’re a bit skeptical that we’re actually at the bottom. That doesn’t mean we have to go down much further. But a lot of the things we’re looking at, whether it’s really the put-to-call ratios being extreme, with the VIX peaking above 40… They’re not really as extreme as we would typically see in a correction, down below, of this magnitude.

4:09 p.m. ET: Stocks end sharply lower, wiping out early gains

Here’s where the markets ended Wednesday’s trading day:

  • S&P 500 (^GSPC): -65.87 (-1.65%) to 3,935.18

  • Dow (^ DJI): -326.63 (-1.02%) to 31,834.11

  • Nasdaq (^IXIC): -373.44 (-3.18%) to 11,364.24

  • Raw (CL=F): +$5.33 (+5.34%) at $105.09 per barrel

  • Gold (CG=F): +$11.40 (+0.62%) to $1,852.40 per ounce

  • 10-year cash flow (^TNX): -7.2 bps for a yield of 2.9210%

9:32 a.m. ET: Stocks open lower as investors digest inflation data

Here are the top moves in the markets as of 9:32 a.m. ET:

  • S&P 500 (^GSPC): -10.85 (-0.27%) to 3,990.20

  • Dow (^ DJI): -3.09 (-0.01%) to 32,157.65

  • Nasdaq (^IXIC): -37.78 (-0.32%) to 11,699.89

  • Raw (CL=F): +$4.28 (+4.29%) at $104.04 per barrel

  • Gold (CG=F): +$6.30 (+0.34%) at $1,847.30 per ounce

  • 10-year cash flow (^TNX): +4.3 bps for a yield of 3.0360%

8:50 a.m. ET: CPI hits higher-than-expected 8.3% annual clip in April

Consumer prices in the United States rose at a slightly slower pace in April compared to March, although continued supply-side disruptions kept inflation near its highest level in 40 years. And core consumer prices rose more than expected, even decelerating from March, suggesting that underlying inflationary trends across the economy have remained strong.

The Bureau of Labor Statistics’ April consumer price index (CPI) rose 8.3% in April from a year ago, down from the 8.5% advance in March . The rise had marked the fastest pace since 1981. Consensus economists had expected an 8.1% increase in April, according to Bloomberg.

On a month-to-month basis, the broadest measure of the CPI rose 0.3%, compared with the 1.2% rise recorded in March. Excluding food and energy, core CPI also slowed only slightly in April compared to March. Core CPI rose 6.2% last month from a year ago, after rising 6.5% in March. And on a monthly basis, core CPI rose 0.3%, compared to the expected 0.4% rate.

7:45 a.m. ET: Mortgage applications rise for straight week despite rate hike

The volume of mortgage applications in the United States rose last week for a second straight week, even as mortgage rates hit their highest levels in more than a decade.

The Mortgage Bankers Association’s Weekly Mortgage Demand Index rose 2.0% in the week ended May 6, according to the company’s latest weekly report Wednesday morning. Buying requests led the way higher, up 5% week-over-week on a seasonally adjusted basis. Yet, on an unadjusted basis, purchase requests were 8% lower than the same week last year. And refinancing applications fell 2% from the previous week and 72% from the same week last year.

“The surge in mortgage applications last week was driven by a surge in conventional and government purchase loan application activity, even as mortgage rates hit an all-time high – 5.53 % – since 2009,” said Joel Kan, associate vice president of economics at the MBA. and industry forecasts, said in a press release. “Despite a slow start to the home buying season in the spring of this year, potential buyers are showing some resistance to higher rates. Buying activity has now increased for two straight weeks.”

“Rapidly rising mortgage rates continue to plague the refinance market, with activity 70% lower than a year ago,” Kan added. “Most owners have refinanced at lower rates over the past two years.”

7:38 a.m. ET Wednesday: Stock futures rise as investors await inflation data

Here is where the markets were trading Wednesday morning:

  • S&P 500 Futures Contracts (ES=F): +45.75 points (+1.14%) to 4,042.50

  • Dow futures (JM=F): +282.00 points (+0.88%) to 32,369.00

  • Nasdaq futures contracts (NQ=F): +182.75 points (+1.48%) to 12,531.75

  • Raw (CL=F): +$3.99 (+4.00%) at $103.75 per barrel

  • Gold (CG=F): +$11.30 (+0.61%) to $1,852.30 per ounce

  • 10-year cash flow (^TNX): -6.1 bps for a yield of 2.932%

6:15 p.m. ET Tuesday: Stock futures flat ahead of CPI data

Here’s where the markets were trading Tuesday night:

  • S&P 500 Futures Contracts (ES=F): -6 points (-0.15%) to 3,990.75

  • Dow futures (JM=F): -44 points (-0.14%) to 32,043.00

  • Nasdaq futures contracts (NQ=F): -21 points (-0.17%) to 12,328.00

NEW YORK, NEW YORK – MAY 05: Traders work on the floor of the New York Stock Exchange during morning trading on May 05, 2022 in New York City. Stocks opened lower this morning after closing higher on Wednesday after the Federal Reserve announced an interest rate hike of half a percentage point in a bid to further reduce inflation. (Photo by Michael M. Santiago/Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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