Inflation Worries Lead To Extended Pullback On Wall Street

Inflation Worries Lead To Extended Pullback On Wall Street

November 17, 2021

Extending the pullback seen in the previous session, stocks showed a notable move to the downside during trading on Wednesday. The major averages continued to give back ground after ending Monday’s trading at record closing highs.

The major averages all closed firmly in the red, although the tech-heavy Nasdaq underperformed its counterparts. While the Nasdaq tumbled 263.84 points or 1.7 percent to 15,622.71, the S&P 500 slid 38.54 points or 0.8 percent to 4,646.71 and the Dow fell 240.04 points or 0.7 percent to 36,079.94.

Concerns about inflation contributed to the weakness on Wall Street after the Labor Department released a report showing consumer prices increased by more than expected in the month of October, lifting the annual rate of price growth to its highest level in over thirty years.

The report said the consumer price index jumped by 0.9 percent in October after rising by 0.4 percent in September. Economists had expected consumer prices to climb by 0.6 percent.

Excluding higher prices for food and energy, core consumer prices still increased by 0.6 percent in October after inching up by 0.2 percent in September. Core prices were expected to rise by 0.4 percent.

The Labor Department also said the annual rate of growth in consumer prices accelerated to 6.2 percent in October from 5.4 percent in September, reaching the highest level since November of 1990.

The annual rate of growth in core prices also accelerated to 4.6 percent from 4.0 percent, reflecting the biggest jump in prices since August of 1991.

The acceleration in the rate of consumer price inflation raised concerns about the outlook for interest rates even though the Federal Reserve has signaled it will not be in a hurry to begin raising rates.

“Strong demand and constrained supply will drive inflation higher in early 2022 which could lead the Fed to raise rates earlier than our December 2022 forecast,” said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics.

She added, “If inflation continues to outstrip expectations, the Fed might also accelerate its QE tapering, but for now we foresee consistent tapering through mid-2022.”

Profit taking may also have contributed to the extended pullback, as some traders cashed in on stocks’ recent run to record highs.

Meanwhile, a separate report released by the Labor Department showed another modest decrease in first-time claims for U.S. unemployment benefits in the week ended November 6th.

Jobless claims decreased for the sixth consecutive week, once again falling to their lowest level since hitting 256,000 in the week ended March 14, 2020.

Sector News

Energy stocks turned in some of the market’s worst performances on the day, as the price of crude oil for December delivery plunged $2.81 to $81.34 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 5.1 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index tumbled by 2.8 percent and 2 percent, respectively.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 2.8 percent nosedive by the Philadelphia Semiconductor Index. The index continued to give back ground after reaching a record intraday high in early trading on Tuesday.

Steel stocks also extended the sharp pullback seen in the previous session, dragging the NYSE Arca Steel Index down by 2.4 percent to its lowest closing level in over seven months.

Housing, software and retail stocks also saw considerable weakness on the day, while gold stocks bucked the downtrend amid a notable increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan’s Nikkei 225 Index slid by 0.6 percent, while China’s Shanghai Composite Index fell by 0.4 percent.

Meanwhile, the major European markets moved to the upside on the day. While the U.K.’s FTSE 100 Index advanced by 0.9 percent, the German DAX Index edged up by 0.2 percent and the French CAC 40 Index closed just above the unchanged line.

In the bond market, treasuries moved sharply lower following the consumer price inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged up by 12.8 basis points to 1.560 percent.

Looking Ahead

Trading activity may be somewhat subdued on Thursday due to the Veterans Day holiday. While the stock markets will be open, banks, federal offices and the bond markets will be closed.

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