Muted Gains In Stocks After Stubborn Inflation Stoked Rate Hike Worries

Barry Adams
10 May, 2023
New York City

Benchmark indexes struggled to advance after the mixed consumer price inflation in April but tech stocks led the gainers. 

Consumer prices rose at a slower pace for the 10th month in a row but inflation forces remained strong reflecting rapid rise in shelter costs. 

Food prices rose at a slower pace and energy prices continued to decline but rising cost of accommodation sustained the overall inflation. 

Stubborn inflation is becoming deeply entrenched in the broader economy, sending a signal to policymakers that a premature pause on the rate hike may make it even harder to bring down inflation to the Fed's target rate of 2%. 

With each passing month, the pace of price rises has slowed but despite the ten rate increases in a row, overall inflation is significantly higher than the Fed's target rate. 

Policymakers are hoping for a cumulative effect of ten rate increases to lower aggregate demand and weaken inflation forces but prices are still rising at rapid pace stoking wage inflation. 

Rates have been on the rise since March 2022 but real rates are still negative and not restrictive enough for the economy to slow down and cool inflation below the long term average of 2%.  

 

CPI In April Eased to 4.9%, Sustained Housing Inflation

Consumer price index in April declined to 4.9% from a year ago after rising at 5.0% in March, the Bureau of Labor Statistics reported Wednesday. 

On a monthly basis, seasonally adjusted inflation index accelerated to 0.4% in April after rising 0.1% in March. 

The index for shelter was the largest contributor to the monthly all items increase, followed by increases in the index for used cars and trucks and the index for gasoline.

The annual pace of shelter inflation edged slightly down to 8.1% from 8.2% in the previous month, used car and trucks prices declined 6.6% after falling 11.6%, food prices eased to 7.7% from 8.5% and energy costs fell 5.1% from 6.4% after gasoline prices dropped 12.2% and fuel costs declined 20.2%. 

Core prices, which excludes food and energy, rose 5.5% from a year ago and 0.4% from the previous month. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 0.5% to 4,119.17 and the Nasdaq Composite fell 0.6% to 12,179.55.  

The yield on 2-year Treasury notes hovered at 4.00%, 10-year Treasury notes edged up to 3.499% and 30-year Treasury bonds held at 3.82%. 

Crude oil fell 75 cents to $72.42 a barrel and natural gas prices rose 3 cents to $2.25 a thermal unit. 

 

U.S. Stock Movers 

Airbnb Inc plunged 13.6% to $109.56 after the company released quarterly results and forecasted weak second quarter outlook. 

Revenue in the first quarter increased 20% to $1.8 billion from $1.5 billion and gross booking value soared 19% to $20.4 billion. 

The online booking company swung to a profit of $117 million compared to a loss of $19 million and diluted earnings per share was 18 cents compared to (3 cents) a year ago. 

Nights and experiences booked on the platform increased 19% to 121.1 million. 

The company forecasted revenue in the second quarter between $2.35 billion and $2.45 billion, an increase between 12% and 16%. The company also estimated a slight decline in average daily rate driven by "driven by mix shifts and the introduction of new Host pricing tools."

GoodRx Holdings Inc decreased 5.1% to $4.45 after the company reported quarterly results that were ahead of market's expectations but the online pharmacy estimated weaker-than-expected second quarter and full-year results. 

Akamai Technologies Inc increased 5.1% to $82.90 after the cloud computing services provider lifted its annual revenue outlook on better-than-expected quarterly results. 

Rivian Automotive Inc soared 8.2% to $15.0 after the electric vehicle maker reiterated its 2023 production target of 50,000 trucks and reported narrower-than-expected quarterly loss. 

Dutch Bros Inc declined 7.3% to $30.33 after the coffee chain operator reported weaker-than-expected same store sales and total revenue in the first quarter.