Stock Indexes Plunge On Fears Rates Will Lag Inflation For Months

Barry Adams
05 May, 2022
New York City

U.S. indexes opened lower and accelerated declines after investors digested Fed action and comments and reassessed the Fed's plan in combating inflation. 

Fed Chairman Powell's comments suggested that the larger monetary tightening is not on the table unless the new economic data requires.  

The S&P 500 index plunged 3.6% to 4,146.87 and the Nasdaq Composite index dropped 5% to 12,317.69. 

10-year U.S. Treasury yield jumped to close at 3.09% and crude oil advanced 50 cents to close at $108.34.

Chairman Jerome Powell at a press conference after the rate decision yesterday highlighted the need to bring down the inflation from the current 8.5% rate to the Fed target rate of 2%. 

However, Powell also added "our tools do not do well" with supply side shocks. 

Chairman Powell added that the Fed is powerless in impacting the Inflation emanating from the rising energy prices and supply disruptions linked to China's Covid-19 lockdowns. 

Powell went on to add that the "economy is strong" and "labor markets are stronger" and the labor market imbalance needs to be reduced using monetary policy tools.

The JOLT report released by the U.S. Department of Labor indicated there are at least 11.5 million job openings and 6.5 million people are looking for work. 

Yet, the labor participation rate is held steady between 61% and 63% and the rate is expected to decline. 

In a broad sell-off, tech stocks led the losers and e-commerce stocks plunged more than 15%. 

Ebay, Etsy, Wayfair, Shopify dropped between 11% and 26%. 

Large tech companies including Amazon, Meta Platforms, Microsoft, and Alphabet declined between 4%and 6%. 

European markets traded higher but turned negative after the U.S. indexes accelerated losses. 

The DAX index fell 0.5% in Frankfurt, the CAC-40 index declined 0.4% in Paris, and the FTSE 100 index closed up 0.1% after rising as much as 1.3%. 

The U.K. pound tumbled after the Bank of England lifted the key interest rate by 25 basis points to 1%. 

The central bank raised rates for the fourth time in a row and highlighted the risk of economic slowdown and added that the inflation is likely to peak around 10%. 

The pound dropped 2% and fell to $1.23. 

Markets in Japan and South Korea were closed today.

Market indexes in Mumbai surged at opening after the U.S. Federal Reserve raised its key rate 50 basis points and said that the faster rate increase of 75 basis points is not discussed at least for the next couple of meetings.

The Hang Seng Index in Hong Kong fell 0.4% after China's service sector contracted at the second fastest pace in April and on the ongoing China lockdowns and tech sector crackdown worries. 

The ASX 200 index in Sydney rose 0.8%.