NEW YORK, RAW – Wall Street has resumed its sell-off, closing lower as inflation hit a four-decade high, cementing expectations the US Federal Reserve will hike key interest rates at the conclusion of next week’s monetary policy meeting to prevent the economy overheating.
Looming uncertainties surrounding Russia’s invasion of Ukraine also helped convince market participants to recommence their flight to safety.
While all three major indices ended in the red, they pared their losses late in the day and closed well above session lows, as the US equities market followed its best day in months on Wednesday by renewing a multi-session sell-off.
“It’s more of the same,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, noting that the equity market’s daily volatility is “being driven more by geopolitical than economic news.”
Consumer prices surged in February to a 7.9 per cent annual growth rate, according to the Labor Department, the hottest reading in 40 years.
“The (CPI) print was not far off estimates,” Nolte said. “There will be more to come in the next month or two as some of the rising commodity prices get incorporated.”
While the market fully expects the central bank to raise the Fed funds target rate by 25 basis points at the conclusion of next week’s monetary policy meeting, the CPI data suggested the Federal Open Market Committee could move “more aggressively” to curb inflation in the upcoming year, as promised by Fed chair Jerome Powell last week.
“It’s still expected the Fed will raise rates four to seven times in the next year or two to curb economic growth,” Nolte said, adding that “what complicates this is the Fed has never raised rates with the yield curve this flat and volatility so high.”
Energy prices were the main culprit, with petrol prices surging 6.6 per cent in a single month, although the report did not reflect the entirety of spiking crude prices following Russia’s actions in Ukraine.
Those actions kept geopolitical jitters at a full boil, with peace talks showing little progress even as a humanitarian crisis unfolds and world oil supply pressures continued to weigh on global markets.
Amazon.com provided one of the day’s bright spots, its shares surging after the e-commerce giant announced a 20-for-1 stock split and a $US10 billion share buyback.
The Dow Jones Industrial Average fell 112.18 points, or 0.34 per cent, to 33,174.07, the S&P 500 lost 18.36 points, or 0.43 per cent, to 4,259.52 and the Nasdaq Composite dropped 125.58 points, or 0.95 per cent, to 13,129.96.
Six the 11 major sectors in the S&P 500 closed in negative territory with tech suffered the biggest percentage drop, while energy shares saw the largest gain.
Goldman Sachs Group Inc lost ground after announcing it would became the first major US investment bank to close its operations in Russia.