U.S. stocks declined sharply on Wednesday, led to the downside by technology shares as key inflation data showed higher-than-expected price pressures.
The Dow Jones Industrial Average fell 430 points, following its worst day since February on Tuesday. The S&P 500 lost 1.5%, while the tech-heavy Nasdaq Composite slid 2.3%.
The selling intensified after the S&P 500 fell below Tuesday’s low, a level traders were watching closely because of the intraday rebound one day ago. Once the S&P fell below that low about an hour into the trading day, the benchmark fell even further.
Inflation accelerated at its fastest pace since 2008 last month with the Consumer Price Index spiking 4.2% from a year ago, compared to the Dow Jones estimate for a 3.6% increase. The monthly gain was 0.8%, versus the expected 0.2%.
Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis. The respective estimates were 2.3% and 0.3%.
“The markets have been hovering around all times highs with a lot of the reopening trade already priced in. So it’s not out of the question that the outsized inflation read could bring us back down to earth a bit,” said Mike Loewengart, managing director of investment strategy at E-Trade.
“Keep in mind the Fed has made it clear that it won’t let inflation increases necessarily sway it from its easy money policies and further any jumps like this could be transitory. So is this a trend? That remains to be seen,” Loewengart said.
Tech shares, which have been under pressure this week and this month, led the decline again Wednesday as bond yields jumped. Shares of Alphabet, Microsoft, Facebook, Amazon and Apple all fell more than 2%, while shares of chipmakers Nvidia and AMD were also lower. Tesla slid about 3%.
Strength in bank stocks and energy shares, which could do well in an inflationary environment, helped support the broader market. JPMorgan rose 1%, while Occidental Petroleum climbed 6.5%. Chevron also traded 2% higher.
The technology sector pulled off a big intraday reversal in the previous session where the Nasdaq Composite erased a loss north of 2% and ended the day flat. The blue-chip Dow, however, lost more than 450 points. The S&P 500 slipped 0.9%, but avoided its second straight 1% loss.
The Technology Select Sector SPDR is off by nearly 2% this week and 5% this month, as investors reassess the group’s high valuations in the face of rising inflation.
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