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U.S. Stocks Under Pressure As Upbeat Data Raises Inflation Concerns

wallstreet july24 17feb21 lt

Following the mixed performance seen in the previous session, stocks have moved mostly lower in morning trading on Wednesday. The major averages have all moved to the downside, with the Dow pulling back off yesterday's record closing high.

While the Dow briefly turned positive after an initial drop, the blue chip index is down 54.01 points or 0.2 percent at 31,468.74. The Nasdaq is down 173.23 points or 1.2 percent at 13,874.27 and the S&P 500 is down 22.59 points or 0.6 percent at 3,910.00.

The weakness on Wall Street comes following the release of a batch of largely upbeat U.S. economic data, which paints a positive picture of the economy but has also added to recent inflation concerns.

Before the start of trading, the Commerce Department released a report showing retail sales rebounded by much more than anticipated in the month of January.

The Commerce Department said retail sales spiked by 5.3 percent in January after sliding by a revised 1.0 percent in December.

Economists had expected retail sales to jump by 1.1 percent compared to the 0.7 percent decrease originally reported for the previous month.

Excluding sales by motor vehicle and parts retailers, retail sales soared by 5.9 percent in January after tumbling by a revised 1.8 percent in December.

Economists had expected ex-auto sales to increase by 1.0 percent compared to the 1.4 percent slump originally reported for the previous month.

The Federal Reserve also released a report showing industrial production increased by more than expected in the month of January.

The Fed said industrial production climbed by 0.9 percent in January after jumping by a downwardly revised 1.3 percent in December.

Economists had expected industrial production to rise by 0.5 percent compared to the 1.6 percent spike originally reported for the previous month.

Adding to inflation concerns, a separate report from the Labor Department showed producer prices jumped by much more than expected in the month of January.

The Labor Department said its producer price index for final demand surged up by 1.3 percent in January after rising by 0.3 percent in December. Economists had expected producer prices to increase by 0.4 percent.

Excluding food and energy prices, core producer prices still shot up by 1.2 percent in January after inching up by 0.1 percent in December. Core prices were expected to edge up by 0.2 percent.

The report also showed the annual rate of producer price growth soared to 1.7 percent in January from 0.8 percent in December.

Core producer prices were up by 2.0 percent year-over-year in January, reflecting a notable acceleration from the 1.2 percent increase seen in the previous month.

"The modest year-on-year increases, despite big month-on-month increases, suggest this is reflation, not inflation," said Chris Low, Chief Economist at FHN Financial. "That is, prices are rising after falling earlier."

"Some further increases in the PPI are likely given commodity price behavior in recent weeks," he added. "These will boost the PPI and — to a much lesser extent — the CPI in the months ahead."

In addition to the inflation concerns, traders may also be worried the upbeat data will reduce the pressure on lawmakers to pass additional stimulus.

Meanwhile, notable gains by Chevron (CVX) and Verizon (VZ) have helped limit the downside for the Dow after Warren Buffett's Berkshire Hathaway revealed increased stakes in the blue chip stocks.

Gold stocks are extending the sell-off seen in the previous session, dragging the NYSE Arca Gold Bugs Index down by 2.8 percent to its lowest intraday level in eight months.

The continued weakness among gold stocks comes amid another steep drop by the price of the precious metal, with gold for April delivery plunging $21.60 to $1,777.40 an ounce.

Software and semiconductor stocks have also shown significant moves to the downside, contributing to the step drop by the tech-heavy Nasdaq.

Tobacco, transportation and computer hardware stocks have also moved to the downside, while energy stocks are seeing some strength amid a modest increase by the price of crude oil.

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index slid by 0.6 percent, while Hong Kong's Hang Seng Index jumped by 1.1 percent.

Meanwhile, the major European markets have all moved to the downside on the day. While the German DAX Index has fallen by 0.7 percent, the U.K.'s FTSE 100 Index is down by 0.4 percent and the French CAC 40 Index is down by 0.2 percent.

In the bond market, treasuries have turned higher over the course of the morning after seeing initial weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 2.2 basis points at 1.277 percent.

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