Daily Stock Market Reports

Stocks Reverse Course, Finish Lower on Inflation Data


Stocks fell Wednesday after fresh data showed that inflation–though slightly down–remained higher than expected last month, feeding renewed apprehension about the Federal Reserve’s likely response and extending a punishing stretch for equities.

The Dow Jones Industrial Average fell for a fifth day in a row, the Nasdaq Composite lost 3.2%, and bitcoin fell 8.5%.

Markets entered 2022 on a multiyear winning streak, but persistent inflation and the prospect of a sustained cycle of interest-rate increases have rattled what was strong investor sentiment.

The S&P 500 declined 65.87 points, or 1.6%, to close at 3935.18. The technology-focused Nasdaq was down 373.44 to 11364.24, its lowest close since November 2020. The Dow fell 326.63, or 1%, to 31834.11, and marked its largest five-day percentage decline in nearly two years.

The day offered no relief for anxious stock investors, who have been bracing for the Fed to remove more of its economic support.

Trading was bumpy. The S&P 500 turned lower in the afternoon after spending much of the morning in the green, and its losses deepened as the closing bell neared. There is a long way to go before rising prices come back under control, investors and analysts warned, giving rise to volatility as financial conditions continue to tighten.

“The Band-Aid is still coming off slowly,” said

Michael Farr,

chief executive of investment advisory Farr, Miller & Washington. “According to the Fed, we’re not near the end of this process that everyone wants over.”

The consumer-price index increased 8.3% in April from the same month a year ago, data released Wednesday morning showed, decelerating from an 8.5% annual rate in March but above the 8.1% expected by economists. Lower annual inflation last month marks the first monthly easing of price increases since August 2021.

Volatile markets have been primed to react strongly to any headline hinting at persistent price pressures, said

David Kotok,

chief investment officer at Cumberland Advisors. “We’re in those kinds of crazy times,” he said.

The inflation data sent short- and long-term government-bond yields converging, which investors said signaled concerns about tighter monetary policy and growth. The yield on the two-year Treasury note–highly responsive to expected Fed tightening–rose to 2.629%, from 2.623% at Tuesday’s settlement. The yield on the 10-year Treasury, meanwhile, declined to 2.918%, from 2.990% a day earlier. Bond yields fall as prices rise.

Riskier assets continued to suffer. Niche pharmaceutical companies were among the Nasdaq’s biggest losers on the day, with larger tech firms such as

Netflix

and

Facebook

parent

Meta Platforms

both declining more than 4%. In the unpredictable world of cryptocurrency, bitcoin fell to its lowest 5 p.m. ET level since December 2020 and continued to trade more than 50% off of its all-time highs from last year.

Traders worked on the floor of the New York Stock Exchange on Tuesday.



Photo:

BRENDAN MCDERMID/REUTERS

“The bubble-type stocks will continue to unwind, and we’re watching bitcoin closely,” said

Chris Senyek,

chief investment strategist at Wolfe Research. Market losses in areas like those—which have attracted throngs of retail investors over the last two years—could dent spending in the real economy, he warned.

More speculative bets like investments in growth-oriented stocks and crypto have been slammed this year. Higher interest rates set by the Fed translate into greater returns on safe assets, dimming the appeal of far-off profits. The central bank last week lifted rates by half a percentage point, the biggest rise since 2000, and approved a plan to shrink its $9 trillion asset portfolio, kicking into a higher gear its campaign to rein in 40-year-high inflation.

Adding to the uncertainty for investors are the war in Ukraine, which has propelled inflation even higher by boosting commodity prices, and Covid-19 lockdowns in China that threaten to hurt the global economy.

“If we only had rising policy rates, or only had high inflation, or only had China or only had Ukraine, we could probably manage that,” said Daniel Morris, chief market strategist at BNP Paribas Asset Management. “But we’ve got all that simultaneously. That’s why it’s such a particularly challenging environment.”

Aoifinn Devitt, chief investment officer at investment advisory Moneta, said she has been guiding clients toward investments grounded in the real economy, such as in the energy and infrastructure sectors, because of those sectors’ relative strength amid inflation. The selloff among tech stocks, she noted, has been “indiscriminate.”

“It’s probably a sign of fear that has entered the retail investor complex,” Ms. Devitt said.

Riskier corners of the market got little comfort on Wednesday. Bitcoin’s recent selloff, and a downbeat quarterly report Tuesday, contributed to declines for Coinbase Global. Its shares slid $19.27, or 26%, to $53.72 after the cryptocurrency exchange said its users declined from the previous quarter. Shares of Unity Software plunged $17.83, or 37%, to $30.30 after the videogaming software developer said its loss widened and gave second-quarter revenue guidance below analysts’ expectations.

Kohl’s

stock fell $2.74, or 5.6% to $46.65 as shareholders rejected an activist investor’s push to replace up to 10 directors as the retailer is exploring a potential sale. Switch rose $2.79, or 9.1%, to $33.54 after the computer-services company said it was being taken private by a consortium of investors.

On the other hand, strong earnings reports from some companies drove gains. Shares of Electronic Arts rose $8.89, or 8%, to $120.49 after the videogame company said revenue in the latest fiscal year rose 24% to $6.99 billion. Doughnut chain Krispy Kreme logged a rise of 46 cents, or 3.8%, to $12.67 after reporting earlier Wednesday that net revenue jumped 16% year over year in the three months through March.

Oil prices climbed. Brent crude, the global benchmark, rose $5.05 a barrel, or 4.9%, to settle at $107.51 a barrel.

Overseas markets were broadly higher. The Stoxx Europe 600 gained 1.7%, led by shares of auto and real-estate companies. In Asia, Hong Kong’s Hang Seng gained 1% and the Shanghai Composite Index added 0.8%.

Write to Joe Wallace at joe.wallace@wsj.com and Matt Grossman at matt.grossman@wsj.com

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