U.S. Stocks Move Sharply Lower As Inflation Exceeds Estimates

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Stocks saw considerable volatility in morning trading on Wednesday before once again coming under substantial selling pressure in the afternoon. With the steep drop on the day, the major averages all ended the session at their lowest closing levels in over a year.

The major averages saw further downside going into the close, ending the day near their lows of the session. The Dow slumped 326.63 points or 1 percent to 31,834.11, the Nasdaq plunged 373.44 points or 3.2 percent to 11,364.24 and the S&P 500 tumbled 65.87 points or 1.7 percent to 3,935.18.

The weakness that emerged on Wall Street came as traders digested a highly anticipated Labor Department report showing the annual rate of consumer price growth slowed by less than expected.

While the report showed the annual rate of consumer price growth slowed to 8.3 percent in April from a 40-year high of 8.5 percent in March, economists had expected the pace of growth to slow to 8.1 percent.

The annual rate of growth in core consumer prices also slowed to 6.2 percent in April from 6.5 percent in March, although the rate was expected to decelerate to 6.0 percent.

On a monthly basis, the Labor Department said its consumer price index rose by 0.3 percent in April after surging by 1.2 percent in March. Economists had expected prices to edge up by 0.2 percent.

Core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in April after rising by 0.3 percent in March. Core prices were expected to increase by 0.4 percent.

The data added to recent concerns the Federal Reserve will raise interest rates more aggressively in an effort to bring inflation down at a faster rate.

Traders have recently expressed concerns more aggressive moves by the Fed and other central banks could lead to a period of stagflation or an outright recession.

"Overall, the April data will probably strengthen the Fed's resolve to continue hiking rates by 50bp at the next couple of meetings - and could lead to renewed speculation about a 75bp hike or an inter-meeting move," Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "But with goods shortages tentatively easing and signs that wage growth is set to cool, we still think a more pronounced drop back in inflation will allow officials to slow the pace of tightening in the second half of the year."

Sector News

Computer hardware stocks moved sharply lower over the course of the session, dragging the NYSE Arca Computer Hardware Index down by 3.8 percent to its lowest closing level in well over a year.

Substantial weakness also emerged among housing stocks, as reflected by the 3.4 percent nosedive by the Philadelphia Housing Sector Index. The index also ended the session at a more than one-year closing low.

Semiconductor stocks also showed a significant move to the downside on the day, resulting in a 3 percent plunge by the Philadelphia Semiconductor Index.

Airline, retail, banking and networking stocks also came under considerable pressure as the day progressed, while notable strength remained visible among tobacco and oil stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index edged up by 0.2 percent, while China's Shanghai Composite Index advanced by 0.8 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index surged by 2.5 percent, the German DAX Index shot up by 2.2 percent and the U.K.'s FTSE 100 Index jumped by 1.4 percent.

In the bond market, treasuries climbed firmly into positive territory after showing a lack of direction earlier in the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 7.2 basis points to 2.921 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to Labor Department reports on producer price inflation and initial jobless claims.

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