On Friday, US stocks ended the data lower significantly and recorded their biggest drop in a week since January, after the CPI data turned out to be worse than expectations. The data showed that consumer prices had risen more than expected in May, which increased fears of aggressive rate hikes from the US Federal Reserve. As soon as the inflation report hit, there was a 3.075% increase in the 2-year Treasury yields, as they are very sensitive to hikes in interest rates. This is the highest the yields have been since June 2008. As for 10-year yields, they climbed 3.178%, which is the highest they have been since May 9th.
CPI data Higher Than Expected
The report from the US Labor Department showed that there was a 1.0% increase in the consumer price index (CPI) in the previous month after it had gone up in April by 0.3%. According to analysts, they had expected the monthly CPI to rise up by 0.7%. As far as the year-on-year increase is concerned, the CPI rose by 8.6%, which was the biggest gain it had recorded since 1981 after an 8.3% rise had been recorded back in April.
The year has seen higher volatility in stocks from the beginning and the recent losses were primarily because of concerns about inflation, the possibility of a recession and increase interest rates. Market analysts said that the inflation data should erase any possibility of a pause in the hike in interest rates by the end of summer, as the Federal Reserve is focused on bringing inflation under control.
Decline in Indexes
There was a 2.73% decline recorded in the Dow Jones Industrial Average, as it fell by 880 points to reach 31,392.79. A 2.91% drop was recorded in the S&P 500 index, which was reduced by 116.96 points to reach 3,900.86. As for the tech-heavy Nasdaq Composite, the index fell by 3.52% or 414.20 points to hit 11,340.02.
All major stock indexes in the US saw their biggest decline in a week since January 21st. The weekly decline in the Dow Jones was recorded at 4.58%, while a 5.06% weekly decline was reported in the S&P 500. A 5.60% decline in the Nasdaq was recorded for a week. So far, there has already been an 18.2% decline in the S&P 500 this year.
There was a 3.7% drop in the S&P 500 growth index on Friday, while there was a 2.2% decline in the value index. The inflation report came before a policy meeting of the US Federal Reserve scheduled for next week in which it is expected to hike up the interest rate by at least 50 basis points. An additional 50 basis point increase is expected in July and then a strong possibility of the same in September.
One concern is that such an aggressive hike in interest rates could lead to an economic recession. Some of the losers for the day included Netflix, as the video streaming giant’s stock was downloaded by Goldman Sachs.