The Wall plunged on Friday in the wake of US inflation data in May, which climbed to 8.6% year-on-year and a new 40-year high, scaring investors as it now looks like the Federal Reserve should continue to presses the “brake” to curb the inflation rally.
The investment climate was also aggravated by the University of Michigan Consumer Confidence Index, which fell sharply to a record low of 50.2 points for June from 58.4 in May.
The result was that the three main indicators of the American market closed at a daily low and recorded strong losses on a weekly basis.
Investors are particularly concerned about what high inflation means in relation to the US Federal Reserve’s plan to raise interest rates. Some on the Wall now expect an even more aggressive pace from the Fed in tightening its monetary policy.
Barclays economists estimate that the US Federal Reserve may raise interest rates by 75 basis points at the monetary policy meeting on June 14-15.
As they mentioned, they do not share the market expectation for an increase of interest rates by 50 bp. next week, noting that “the Federal Reserve now has reason to surprise the markets with a more aggressive increase “.
“One can easily see the scenario where supply shocks will continue to push inflation to higher levels, despite the Fed tightening monetary policy,” Nancy Davis, founder of Quadratic Capital Management, said in an e-mail.
“A stagnant environment is negative for investment. Stocks and bonds are falling at the same time and the supposedly all-weather 60/40 portfolio is not ready for stagnant inflation,” she said.
In particular, o US inflation in May climbed to a new high of 40 years, with consumer price index to increase by 8.6% compared to a year earlier, after rising 8.3% last month, according to the US Department of Commerce. This is the highest level of inflation since 1981.
Alongside, Americans’ expectations for inflation the following year they jumped to 5.4% in June from 3.3% in May, while for the next 5 years they increased to 3.3% from 3% the previous month. This is the highest level since 2008, says Katie Jones, strategic analyst at Charles Schwab.
In the meantime, his performance 10-year government bond of the US jumped by 11.5 basis points to 3.156%, the highest level since November 9, 2018, while the 2-year strengthened by 15 basis points. at 2.962%, at the highest level since December 3, 2018. The dollar strengthened today by 0.9%.
Indicators – Statistics
On the dashboard, the industrial Dow lost 2.73% or 880 points, falling to 31,392.79, its worst daily drop since May 18. The broader index S&P 500 slipped 2.91% to 3,900.86 points, while the biggest losses were recorded by the technologically weighted Nasdaq which fell by 3.52% to 11,340.02 points.
In weekthe Dow plunged 4.6%, while the S&P 500 (at -5.1%) and Nasdaq (-5.6%) recorded worse performances, according to FactSet.
From 30 shares that make up the Dow only Walmart resisted and remained on positive ground with small gains. Dow Inc. lost more than 6%, followed by Goldman Sachs at -5.65% and Boeing at -5.03%, while Salesforce, JPMorgan, 3M, Microsoft and American Express fell more than 4%.
Goldman Sachs downgraded the securities of a number of internet companies to “sell”, which put a lot of pressure on these shares. Thus, Netflix Inc. closed at -5.1%, Roblox Corp. fell 8.98% and eBay fell 5.16%. Frontdoor Inc. also declined and lost 4.7%.
DocuSign Inc. collapsed with a fall of 24.53%, after the electronic documents company failed to achieve the estimated profits of the first financial quarter of the financial year.