Stocks Sink Near Bear Territory As Elevated Inflation Anchors

Barry Adams
11 May, 2022
New York City

U.S. stocks struggled after April inflation edged lower but stayed near the 40-year peak in March. 

The S&P 500 index fell 1.6% to 3,935.25 and the Nasdaq Composite index declined 3.2% to 11,364.24.  

Crude oil jumped 5% to $105.32 a barrel and the yield on 10-year U.S. Treasury note declined to 2.91% after briefly trading above 3%. 

The consumer price index in April increased at a slower annual pace of 8.3% after rising at 8.5% in March, the Labor Department noted in a release today. 

Core rate of inflation which excludes food and energy increased 6.2% in the 12-month period after rising at 6.5% in the period in March. 

On a month-to-month basis, headline inflation in April increased 0.3% and core rate rose 0.6%. 

The energy index rose 30.3% in the 12-month to April driven by 43.6% in the gasoline index and 80.5% in fuel oil index. 

The index for electricity rose 11.0%, and the index for natural gas increased 22.7% over the last 12 months.

The elevated inflation for the second month stoked the debate that the U.S. inflation is broad-based, durable, and may take time and pain to tame. 

Investors also worried that the elevated inflation may force the Fed to raise rates higher and faster. 

Federal government's April receipts exceeded outlays and generated a surplus of $308 billion compared to the $192 billion in deficit in March. 

In the fiscal year 2022 between October and April, the federal government's deficit was $360 billion, according to the Monthly Treasury Statement released by the U.S. Treasury. 

In trading, investors shied away from tech stocks and Tesla declined 7%, Apple fell 5%, and Microsoft and Meta Platforms dropped 4%. 

In merger news, Duke Realty rejected an unsolicited $24 billion takeover offer from Prologis and  cited that the offer undervalues the company. Prologis has been pursuing the merger for several months. 

Philip Morris International agreed to takeover Swedish Match AB for $16 billion. 

European markets surged after the release of latest inflation data and China reported a decline in virus cases. 

The DAX index jumped 2.2% to 13,828.11, the CAC-40 index gained 2.1% to 6,269.73 and the FTSE 100 index added 1.4% to 7,347.66. 

German inflation in April rose to 7.4% after rising at 7.3% in March from a year ago, Destatis reported earlier in the day. 

April Inflation was record high since German reunification in 1990. 

Thyssenkrupp surged 11% after the steelmaker lifted sales and operating income outlook for the full-year. 

 Bayer AG dropped 6% after the U.S. President Biden's administration asked the Supreme Court to not hear the company's appeal to claims that its Roundup weedkiller causes cancer.

TUI AG jumped 4% after the company estimated return to profitability in the current year and Alstom SA declined 6% despite reporting better-than-expected annual profit.   

In Asian markets, the Seoul index declined for the seventh day in a row on the worries that the rising supply chain costs and global inflation will severely cut profit margins of industrial corporations. 

The Nikkei index in Japan declined 0.2% and Toyota Motor declined 4% after the automaker said rising logistics and raw material costs may trim full-year profit by 20%. 

Hong Kong index gained 1% and Shanghai index edged up 0.8% after the release of mixed inflation data and hopes that Beijing will offer more stimulus and virus cases also declined.  

Investors also reviewed the inflation data from China. 

Consumer prices rose 2.1% in April after rising 1.5% in March from a year ago, the National Bureau of Statistics reported. 

Factory prices or producer price index rose at a slower pace of 8% after rising at 8.3%. The producer prices are expected to slow down in the coming months reflecting weak demand. 

Stocks in India lacked direction for the third week in a row and two leading indexes closed down. Initial public offerings picked up on the back of steady demand from retail investors.

The Sensex index closed down 0.5% to 54,088.39 and the Nifty index declined 0.45% to 16,167.10.