US Equities Crushed On CPI Inflation Data

US stocks sharply dropped on Friday after new data showed that inflation accelerated in May. The S&P 500 was recently down 2.4%.

The Dow Jones Industrial Average declined 675 points, or 2.1%, while the Nasdaq Composite dropped about 3%. US stock benchmarks posted their biggest declines in more than three weeks on Thursday, leaving all three indexes on course to end the week with losses.

Dow industrials decline nearly 700 points after data showed May’s consumer-price index rose more than economists expected. This morning’s losses were broad-based, with all 11 of the S&P 500’s sectors in the red.

The Labor Department on Friday reported that the consumer-price index rose 8.6% in May from the same month a year ago, more than the 8.3% that economists surveyed by The Wall Street Journal expected.

Rising fuel prices and supply-chain disruptions from Russia’s war against Ukraine, as well as lockdowns related to China’s zero-Covid strategy, have contributed to higher prices.

Money managers were watching Friday’s inflation data for indications of Fed rate decisions in the fall and where to allocate their investments. A rapid rise in interest rates could weigh on technology shares, which tend to do well in lower-rate environments.

Fed officials are largely expected to raise the central bank’s key interest rate by half a percentage point next week and replicate that in July.

The higher inflation reading injected renewed volatility into stock, bond and currency markets as investors attempt to assess how much more aggressive the Federal Reserve will have to be to put a cap on price pressures.

Treasury Secretary Janet Yellen warned this week that the US is likely facing a prolonged period of elevated inflation. Some investors are worried that financial tightening to curb inflation could also hit growth, boosting concerns about a recession. The World Bank has sharply lowered global growth forecasts and flagged a risk of recession in many countries.

“We think the market will take a bit more convincing that peak core prices are behind us and they will fade meaningfully,” said Edward Smith, co-chief investment officer at U.K. investment firm Rathbone Investment Management.

In bond markets, the yield on the benchmark 10-year US Treasury note ticked up to 3.091% from 3.041% Thursday. Meanwhile the yield on the two-year Treasury note, which typically reflects investors’ interest-rate expectations, rose to 2.945% from 2.815% Thursday. Yields and prices move inversely.