Stocks fell on Wednesday, with the Dow Jones Industrial Average losing over 200 points after October’s consumer price index jumped by the highest rate in 30 years, adding to investors’ fears that high inflation could derail the recent market rally.
The Dow fell 0.7%, over 200 points, while the S&P 500 declined 0.8% and the tech-heavy Nasdaq Composite lost 1.7%.
The consumer price index—a key measure of inflation—rose 6.2% in October compared to a year ago, its fastest pace of increase in 30 years, according to data from the Bureau of Labor Statistics on Wednesday.
The latest report showed that inflation isn’t slowing down: Spooked investors dumped high-flying tech stocks and sought refuge in hedges like gold and bitcoin, while Treasury yields also spiked.
Following the latest inflation data, the market is now betting that the Federal Reserve may need to raise interest rates sooner than expected, with the first rate hike expected as early as July 2022.
Shares of Big Tech stocks plunged as investors turned away from growth stocks on Wednesday: Amazon, Google-parent Alphabet and Facebook-parent Meta all fell by around 2%.
Tesla regained some of its losses this week after shares rose 4.3%, while rival electric vehicle maker Rivian saw shares surge 29% after going public at a $90 billion valuation—the biggest U.S. IPO since Facebook in 2012.
“Inflation remains stubbornly high, to the surprise of many that expected prices to come back to earth sooner,” says Ryan Detrick, chief market strategist for LPL Financial. “The truth is you can’t shut down a $20 trillion economy and not feel some bumps as it restarts, but we are hopeful the supply chain issues will resolve over the coming quarters and inflation should calm down as well.”
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“The financial markets had accepted the fact that prices would be climbing, but with every passing month inflation has only crept higher,” according to a note from Hilltop Securities on Wednesday. “Between now and year-end, demand for holiday goods will surge, while transportation-constrained supply struggles to keep up.”
This is the second down day in a row for stocks. Before Tuesday and Wednesday’s losses, the S&P 500 had notched eight consecutive days of gains—its best streak in over two years—and closed above 4,700 for the first time. Markets had gotten a boost from strong corporate earnings, but investors clearly remain fearful of high inflation, which will be exacerbated by labor shortages and supply chain issues through the end of the year. The Federal Reserve announced last week that it would begin reducing the historic level of stimulus it has been providing markets since the Covid-19 pandemic began. Fed chairman Jerome Powell said high inflation was “expected to be transitory.”