Runaway inflation in the United States in May sent the New York Stock Exchange sharply down on Friday, where indexes posted their worst week since January.
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After the final close, the Dow Jones Star stock index fell 2.73% to 31,392.79 points. The tech-heavy Nasdaq fell 3.52% to 11,340.02 points.
The S&P 500, which is more representative of the US market, lost 2.91% to 3,900.86 points.
Investors struggled to digest the truly disappointing US indicators, most notably the CPI inflation index, which rose 1% in May while analysts were expecting +0.7%.
Over 12 months, consumer price inflation rose to 8.6%, up from 8.3% in April, far from the “plateau” hoped for by politicians and analysts.
This is the highest price increase since 1981.
Not only have stocks fallen, the dollar has risen sharply and bond yields have risen.
US Treasury short and long term bond yields were neck and neck.
Yields on 2-year Treasury bills rose to their highest level since late 2007 at 3.06%. Similarly, yields on 10-year notes approached their 2018 peak at 3.15%.
“The CPI index is much stronger than expected, the market was hoping for a plateau, but it seems that the pressure on prices is spreading,” noted Shaun Osborne, an analyst at Scotiabank.
“High inflation, a Fed that will raise interest rates more and an increased risk of the economy slowing down, that’s what’s happening,” summarized Karl Haeling from LBBW.
The Federal Reserve Board of Monetary Affairs meets next week and markets are already anticipating a 50 basis point hike in interest rates after a similar hike last month.
But as the stock has risen, more analysts are wondering if the central bank is tightening the screw by triggering a 75-point interest rate hike, an exceedingly rare move by the Fed in recent history.
“Markets are starting to price in the risk of a 75 basis point rate hike next week, but I’m not sure because that would seem like a little panic,” Osborne said.
While the US President hammered out calls for “more and faster” action to be taken against inflation, Fed Chair Jerome Powell promises to be under great pressure when he addresses the press after Wednesday’s meeting of the Monetary Affairs Committee (FOMC) .
Concerns about this continued price hike definitely weighed on consumer confidence, which plummeted in June. The University of Michigan’s fiscal sentiment index hit an all-time low, falling 14% from May to 50.2 points, a decline that surprised analysts.
All S&P sectors ended negatively, notably non-essential spending (-4.16%), information technology (-3.89%) and banks (-3.65%).
Netflix fell 5.10% to $182.94 after an unfavorable opinion from analysts at Goldman Sachs, which also downgraded gaming platform Roblox (-8.98%) and Ebay (-5.16%).
The rush affected all the big names in tech, from Alphabet (-3.04% to $2,228.55), Google’s parent, to Amazon (-5.60% to $109.65) and Meta, the parent company from Facebook (-4.58%). .
Travel sites and cruise lines drank the cup as fuel prices soared, with Booking down 7.59%, Expedia down 5.60% and Royal Caribbean Cruise down 7.33%.
Digital document delivery start-up Docusign, which has suffered since the end of lockdown, slumped again sharply by almost 25% on Friday after announcing poor results.
Tesla, which ended down 3.12% at $696.69, announced it would split its action by three after the close. Amazon had divided its own by 20 on Monday.