S&P 500 Trim Losses Despite Inflation Surge

Barry Adams
13 Jul, 2022
New York City

Stocks sank after inflation accelerated to a new 4-decade high but managed to rebound and trim day's losses. 

The consumer price increase intensified to 9.1% annual rate in June from 8.6% in May after gasoline prices surged 60% from a year ago. 

The S&P 500 index dropped 1.0% to 3,781.62 and the Nasdaq Composite index declined 1.3% to 11,122.30. 

Futures of crude oil prices edged up a fraction $96.40 a barrel and natural gas gained 46 cents to $6.63 a unit. 

The yield on 10-year Treasury notes jumped to 3.01% and backed down to 2.91% but the 2-year yield jumped to 3.13% after the release of the latest inflation report. 

The gap between 2-year and 10-year is the largest since 2000 and many investors believe that the inverted yield generally forecasts  impending economic recession.  

Benchmark indexes opened lower on the worries that the latest inflation report will provide another reason for the Federal Reserve to lift interest rate by a large 75 basis points at its next meeting on July 26-27. 

Core inflation, which excludes volatile food and energy, rose 5.9% on an annual basis after rising at 6.0% in April. 

Despite the sharp rise in inflation, market indexes turned around after two hours of trading and touched the flat line but struggled to stay in the positive territory. 

Delta Airlines declined 6.3% on the market weakness and the company reported profit despite the rising fuel costs as summer travel picked up and business travel began to accelerate. 

June quarter revenues rose 10% to $13.8 billion and net income fell 49% to $735 million or $1.15 a share from $1.44 billion or $2.21 a share a year ago.  

The airline said June quarter domestic revenues were 3% higher and international revenues were 81% of the period in 2019. 

Alphabet, the parent of Google search engine, declined 2.2% and announced a hiring slow down for the rest of the year on the economic uncertainties. 

Netflix gained 1.6% to $177.26 after the streaming services provider struck a partnership with Microsoft for its ad-supported service. 

Unity Software dropped 17.3% to $32.85 and Ironsource Ltd. soared 47.9% to $3.30 after two companies agreed to merge in a $4.4 billion all-stock transaction.  

Separately, Unity lowered its full-year outlook. 

European Markets Sank Deeper 

European markets declined further after the release of the inflation report. 

The DAX index declined 1.1% to 12,756.32, the CAC-40 index fell 0.7% to 6,000.24, and the FTSE 100 index decreased 0.7% to 7,156.37. 

Eurozone production increased 0.8% and 0.6% in the European Union in May on a monthly basis, the eurostat reported on Wednesday. 

On an annual basis, industrial production increased 1.6% in the euro area and 2.7% in the EU in May. 

The U.K. GDP increased 0.5% in May from the revised decline of 0.2% in April, the Office for National Statistics said on Wednesday. 

The expansion was broad based driven by increases in services, production, and construction. 

The monthly GDP is now estimated to be 1.7% above its pre-coronavirus pandemic levels in February 2020.

On an annual basis, the GDP rose 3.5% in May after rising at 3.7% in April. 

The euro inched lower to $1.003.