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Inflation Worries Lead To Sell-Off On Wall Street

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Stocks moved sharply lower over the course of the trading day on Wednesday, extending the pullback seen earlier in the week. With the steep drop on the day, the major averages ended the session at their lowest closing levels in over a month.

The major averages saw further downside going into the close, ending the day just off their lows of the session. The Dow tumbled 681.50 points or 2 percent to 33,587.66, the Nasdaq plummeted 357.75 points or 2.7 percent to 13,031.68 and the S&P 500 plunged 89.06 points or 2.1 percent to 4,063.04.

The sell-off on Wall Street came amid concerns about the accelerating pace of inflation following the release of the Labor Department's report on consumer prices in the month of April.

The Labor Department said its consumer price index climbed by 0.8 percent in April after rising by 0.6 percent in March. Economists had expected consumer prices to inch up by 0.2 percent.

Excluding food and energy prices, core consumer prices also advanced by 0.9 percent in April following a 0.3 percent uptick in March. Core prices were expected to rise by another 0.3 percent.

The much bigger than expected jump in core consumer prices reflected the largest increase since April of 1982.

With the much bigger than expected monthly increase, consumer prices in April were up by 4.2 percent compared to the same month a year ago, reflecting the biggest jump since September of 2008.

Core consumer prices also surged up by 3.0 percent year-over-year, marking the biggest annual increase since January of 1996.

The significantly faster price growth raised concerns about the outlook for monetary policy even though the Federal Reserve has repeatedly downplayed the risks of inflation.

The Fed has indicated that it won't begin tightening monetary policy until inflation is moderately above its 2 percent target for "some time."

Michael Pearce, Senior U.S. Economist at Capital Economics, described the numbers as "scary" but said muted gains in the cyclical components of the consumer price index lend weight to the Federal Reserve's argument that the surge in inflation in April will be "largely transitory."

"With employment still more than 8 million short of its pre-pandemic level, we expect the Fed to maintain its dovish line, even if, as we expect, inflation gains broaden out over the coming months," Pearce said.

Sector News

Interest rate-sensitive housing stocks moved sharply lower over the course of the session, dragging the Philadelphia Housing Sector Index down by 5.4 percent.

The index continued to give back ground after ending Monday's trading at its best closing level since a two-for-one split in early 2006.

Steel stocks also showed a substantial move to the downside, resulting in a 4.7 percent nosedive by the NYSE Arca Steel Index. The index ended the previous session at its best closing level in almost ten years.

Semiconductor, computer hardware, and networking stocks also saw considerable weakness on the day, contributing to the steep drop by the tech-heavy Nasdaq.

Most of the other major sectors also moved to the downside on the day, with notable weakness visible among airline, retail and brokerage stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index slumped by 1.6 percent, while China's Shanghai Composite Index rose by 0.6 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.8 percent, the German DAX Index and the French CAC 40 Index both edged up by 0.2 percent.

In the bond market, treasuries moved notably lower amid the concerns about rising inflation. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 7.1 basis points to 1.695 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to the latest economic data, including reports on weekly jobless claims and producer price inflation.

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