NEW YORK (AP) — Stocks mostly stumble on Wall Street today after inflation slowed last month, but are still worse than expected.
The S&P 500 was up 0.4% after swinging between gains and losses in early trading. The Dow Jones Industrial Average was up 315 points, or 1%, at 32,480 as of 11:49 a.m. EST, and the Nasdaq composite was down 0.5% as tech stocks were again behind the market.
Wall Street has been transfixed by the country’s high inflation and its direction as it forces the Federal Reserve to withdraw the supports it has propped up under the markets for most of the pandemic. The Fed turned decisively to higher interest rates after seeing high inflation last longer than expected.
Today’s report from the US Department of Labor showed inflation slowed slightly in April, falling to 8.3% from 8.5% in March. Investors also found signals in the data that inflation could peak and continue to subside.
Nevertheless, the numbers were still higher than expected by economists. They also showed a bigger-than-expected rise in prices outside of food and gasoline, what economists call “underlying inflation” and which may be more predictive of future trends.
“Underlying inflation has come in strong, and that’s what really matters for the Fed at this point,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
Economists said the inflation report will keep the Fed on track for quick and potentially steep interest rate hikes in the coming months, although the data has led to erratic trading on Wall Street.
Treasury yields initially jumped, but pared their gains as the morning progressed. As yields fell, most stocks reversed their early losses.
The 10-year Treasury yield climbed as high as 3.08%, but fell back to 2.96% in subsequent trades, below its 2.99% level on Tuesday evening. The two-year yield, which moves more on Fed action expectations, rose to 2.67% from 2.62% late Tuesday. It had spiked to 2.75% shortly after the report was released.
To contain high inflation, the Fed has already pulled its main short-term interest rate from its all-time high near zero, where it has spent most of the pandemic. He also said he may continue to raise rates to double the usual amount at future meetings. Such moves by design would slow the economy, hoping to stifle inflation.
The Fed risks causing a recession if it raises rates too high or too quickly. Even if it’s shrewd enough to avoid a downturn, higher rates drive down the prices of stocks and all kinds of investments in the meantime. Indeed, safer, higher-yielding Treasuries suddenly become a stronger competitor for investors’ dollars.
The higher rates are hurting the investments that have been the biggest winners from the pandemic’s ultra-low rates the most. This includes big tech companies, other high growth stocks, and even cryptocurrencies. The Nasdaq’s loss of about 25% so far this year is much worse than the S&P 500’s nearly 16% drop, for example.
Coinbase, a crypto-trading platform, fell 23.5% after reporting much weaker last quarter results than analysts expected. Crypto price declines weighed on trading volumes throughout the quarter.
Several other companies have made great strides after the publication of their latest results. Burger chain Wendy’s fell 9.4% after reporting disappointing earnings. Callaway Golf jumped 14% and H&R Block 17.4% after reporting encouraging financial results.
It’s not just interest rates that are pushing markets down. In China, shutdowns to stem COVID increase the risk of further supply chain disruptions for global businesses and a slowdown in the world’s second-largest economy.
The war in Ukraine, meanwhile, threatens to keep inflation high due to disruptions in the oil and natural gas markets.
Crude surged again today, with a barrel of benchmark US oil up 5.4% at $105.11. Brent crude, the international standard, added 4.7% to $107.31.
That helped S&P 500 energy stocks jump 3.8%, by far the biggest gain among the 11 sectors that make up the index. Exxon Mobil rose 4% and ConocoPhillips jumped 3.7%.