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By Stephen Culp
NEW YORK, May 12 (Reuters) - Wall Street closed lower on
Wednesday with the S&P suffering its biggest one-day percentage
drop since February, as inflation data fueled concerns over
whether interest rate hikes from the Fed could happen sooner
than anticipated.
All three major U.S. stock indexes ended the session deep in
negative territory in the wake of the Labor Department's April
consumer prices report, which showed the biggest rise in nearly
12 years. The report, which measures the prices U.S. consumers pay for
a basket of goods, was hotly anticipated by market participants
who have grown increasingly worried over whether current price
jumps will defy the U.S. Federal Reserve's reassurances by
morphing into long-term inflation.
But pent-up demand from consumers flush with stimulus and
savings is colliding with a supply drought, sending commodity
prices spiking, while a labor shortage drives wages higher.
"The topic on everyone's mind is obviously inflation," said
Matthew Keator, managing partner in the Keator Group, a wealth
management firm in Lenox, Massachusetts. "It's something the
(Fed) has been looking for and they're finally getting their
wish."
"The question is how long will its fires run hot before
starting to simmer?"
That concern is shared by Stuart Cole, head macro economist
at Equiti Capital in London.
"Going forward, the big question is just how long can the
Fed maintain its dovish stance in opposition to the markets,"
Cole said. "Particularly if companies begin raising wages to
encourage unemployed labor back into the workforce, in turn
driving a large hole in the Fed's transitory inflation
argument."
Core consumer prices (CPI), which exclude volatile food and
energy items, grew at 3% year-on-year, shooting above the
central bank's average annual 2% inflation growth target.
(Graphic on inflation) https://tmsnrt.rs/3we4MO7
Unofficially, the Dow Jones Industrial Average .DJI fell
682.09 points, or 1.99%, to 33,587.07, the S&P 500 .SPX lost
89.2 points, or 2.15%, to 4,062.9 and the Nasdaq Composite
.IXIC dropped 357.75 points, or 2.67%, to 13,031.68.
Market-leading mega-caps, including Amazon.com Inc AMZN.O ,
Apple Inc AAPL.O , Alphabet Inc GOOGL.O , Microsoft Corp
MSFT.O and Tesla Inc TSLA.O , weighed heavily as investors
shied away from what many feel are inflated valuations.
"The CPI number being stronger than expected has led to
further weakness in tech stocks," said Michael James, managing
director of equity trading at Wedbush Securities in Los Angeles.
"Tech investors are concerned that higher rates are going to
lead to multiple compression and less attractive valuations for
tech names in a higher rate environment."
Bumble Inc BMBL.O slipped ahead of the online dating
platform's first-quarter results expected after the closing
bell.
First-quarter earnings season is on the wane, with 456
constituents of the S&P 500 having reported. Of those, 86.8%
have beaten consensus estimates, according to Refinitiv IBES.
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