By Joy Wiltermuth and William Watts
This article has been updated to correct the annual inflation figure for March.
Stocks finished lower Wednesday, with the Dow booking its biggest 5-day drop in almost two years, following an eagerly awaited consumer price index reading that showed U.S. inflation slowed less than anticipated in April.
How did stock indexes end?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.82% fell 326.63 points, or 1%, ending at 31,834.11 after swinging rising 423 points at its session high. Its 6.5% loss over the past five days was its biggest such drop since June 15, 2020, according to Dow Jones Market Data.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.88% shed 65.87 points, or 1.7%, closing at 3,935.18
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -1.33% fell 373.44 points, or 3.2%, finishing at 11,364.24.
On Tuesday , the Dow industrials fell 0.3% to close at 32,160.74. The S&P 500 snapped a three-day losing streak with a gain of 0.2%, while the Nasdaq Composite advanced 1%.
What drove markets?
Stock closed lower in choppy trade, as Wall Street attempted to parse the effects of inflation data that showed April consumer prices rose at an 8.3% annual pace , slowing from a more-than-40-year high of 8.5% in March.
The reading, however, was above the 8.1% pace expected by economists surveyed by The Wall Street Journal and underscored that inflation continues to run at a torrid pace. The so-called core rate of inflation, which omits food and energy, also rose by a somewhat stronger 0.6%. Wall Street had forecast a 0.4% increase. The increase in the core rate over the past year also slowed to 6.2% from from a 40-year high of 6.5% in March.
“I just think people don’t know what to make of this,” Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research, said of stock volatility following the inflation reading.
“We know the Fed’s hiking cycle has begun,” Frederick said, adding that it’s “difficult to have a feeling that we are at a market bottom,” with the size of future rate hikes — and their ending point — still a moving target.
The data prompted President Joe Biden to again highlight his administration’s efforts to fight inflation, while speaking at an Illinois farm on Wednesday. It also reinforced expectations for the Fed to continue on an aggressive path of rate hikes and policy tightening. But it provided little salve to families already facing high costs at the grocery store and gas pump, or to investors burned by its effects in markets.
“If the Fed with its access to real-time information and legions of staff Ph.D economists can’t confidently predict inflation rates, neither can anyone else,” Scott Knapp, chief market strategist at CUNA Mutual Group, said in emailed comments.
“It erred when it implied it could. Investors took their word for it and acted based on misplaced belief. This might seem like water under the bridge, but the implications of overconfidence live on,” he said.