By Joy Wiltermuth and Mark DeCambre
U.S. stock indexes closed sharply lower Wednesday, after a reading on inflation for the year to April climbed 4.2%, the highest rate in about 13 years, reigniting fears that the Federal Reserve may need to dial back its easy-money policies earlier than expected.
Trading on Wednesday was punctuated by heavy selling in technology shares, while the Dow Jones Industrial Average suffered its biggest one-day percent decline since Jan. 29.
How did major indexes fare?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.24% skidded 681.76 points, or 2%, to close at 33,587.66, near the session low.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.47% fell 89.06 points, or 2.1%, ending at 4,063.04.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.21% dropped 357.75 points, or 2.7%, finishing at 13,031.68.
On Tuesday , the Nasdaq Composite bounced back from an intraday drop of more than 2% to end slightly lower as tech shares rebounded from an initial rout. The Dow finished 473.66 points lower, 1.4%, for its biggest one-day percentage drop since Feb. 26. The S&P 500 lost 0.9%.
What drove the market?
Stocks closed sharply lower as inflation jitters percolated again, following a report showing U.S. inflation in the year to April rose at its fastest pace in about 13 years, amid the recovery from the COVID pandemic.
“Inflation destroys wealth. Period,” said Patrick Leary, head of trading at Incapital, in an interview with MarketWatch. “We see inflation showing up in markets. If it’s indeed transitory, markets can live with it. But if it’s not transitory, that’s when it is going to become troubling for stocks.”
The U.S. consumer-price index rose 4.2% from a year ago, compared with average economists estimates surveyed by Econoday for a 3.6% increase. The month-over-month rise was 0.8%, versus a forecast for a rise of 0.2%. Overall, the rise was showed the fastest rate of climb since September 2008.
Excluding volatile food and energy prices, the core CPI reading increased 3% from the same period in 2020, compared with expectations for 2.3% for the year.
U.S. gasoline prices also topped $3 a gallon Wednesday for the first time in more than six years, pushing higher as the government and operators of the Colonial Pipeline looked to address fuel bottlenecks sparked by a cyberattack that at least temporarily hamstrung a key artery for fuel transport in the U.S.
Transportation Secretary Pete Buttigieg said the Biden administration understands Americans’ concerns. “We’ve seen that in a lot of the impacted geographies that this is a real issue, and that’s one of the reasons why we’ve been working with every lever of government that’s available,” Buttigieg said.
Mark Stoeckle, chief executive at Adams Funds, attributed some of the recent selling to concerns around inflation and potentially higher interest rates, but also to falling technology stocks that are “high growth, but without any earnings” that had gone parabolic.
“People can bash Apple /zigman2/quotes/202934861/composite AAPL -1.49% , Facebook /zigman2/quotes/205064656/composite FB -1.25% and Google /zigman2/quotes/205453964/composite GOOG -2.04% all they want, but at the end of the day, they are generating just gobs of free cash flow and delivering on earnings,” he told MarketWatch