Tech companies led stocks lower on Thursday after another choppy day of trading on Wall Street as global markets continue to sway on uncertainty over the path of inflation, interest rates and the world economy.
The S&P 500 fell 0.4%, its fifth decline in the past six days. The fall marks another reversal for U.S. stocks, which a day earlier hit their biggest gain since June 2020, when a tumble in oil prices appeared to ease pressure on high global inflation.
Oil prices had their own swings on Thursday, with a barrel of US crude jumping as much as 5.7%, before toggling between gains and losses. It settled at US$106.02, down 2.5%. Recent spikes in energy prices have heightened the risk that the economy will grapple with a toxic cocktail of sluggish growth and persistently high inflation.
The oil swings are just some of the waves of reports that have rocked markets around the world. The European Central Bank said high inflation will push it to conclude its bond-buying program intended to stimulate its economy faster than expected. In the US, a report showed consumer prices jumped 7.9% in February from a year earlier. This is the largest spike since 1982, although the reading was largely in line with expectations.
Altogether, the forces caused a reversal of many market moves from the previous day.
The S&P 500 fell 18.36 points to 4,259.52. The benchmark index is now 11.2% below the all-time high it reached earlier this year.
The Dow Jones Industrial Average fell 112.18 points, or 0.3%, to 33,174.07, while the tech-heavy Nasdaq composite slipped 125.58 points, or 0.9%, to 13 129.96.
Small company stocks held up better than the broader market. The Russell 2000 fell 4.62 points, or 0.2%, to 2,011.67.
European stocks were even harder hit, with Germany’s DAX losing 2.9% and France’s CAC 40 losing 2.8%. Asian equities mostly rose.
Such fluctuations have become common in recent weeks, not just day-to-day but also hour-to-hour, after Russia’s invasion of Ukraine raised concerns about rising oil, wheat and other staples produced in the region.
Markets were already jittery before the war because high inflation is pushing central banks to raise interest rates for the first time in years and suspend programs launched to support the global economy after the pandemic hit. Many investors still consider a recession unlikely, but they say the risk of a recession is increasing.
“Until investors can get clarity on some of these topics, we’re going to continue to have volatile markets,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Analysts said Thursday’s US inflation report, while dazzling, is unlikely to have much effect on markets. The 7.9% jump was exactly what economists expected, and it did not include the most recent spike in oil and gasoline prices after Russia invaded Ukraine. On the contrary, it may have offered some relief as it did not reach the 8% threshold which could be even worse.
Many investors said the report was unlikely to change anything for the Federal Reserve, which will meet next week to vote on interest rates. It is widely expected to raise its short-term policy rate by a quarter of a percentage point, which would be the first since 2018. Higher rates are slowing the economy and the Fed is trying to raise them enough to curb inflation, but not to the point of triggering a recession.
“To some extent, this inflation report doesn’t really matter much,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“The Fed will likely recognize rising food and energy costs, but will also recognize that monetary policy can’t do anything about it,” he said, as oil and wheat prices surged in the wake of the Russian President Vladimir Putin’s decision to invade Ukraine. “Monetary policy cannot make Putin back down.”
Brent, the international standard, fell 1.6% to US$109.33 a barrel. So far, this oil and the US benchmark oil are up more than 40% for 2022, although they remain below highs reached earlier this week. US Oil briefly rose above $130.
The 10-year Treasury yield, which tracks expectations for inflation and economic growth, fell immediately after the release of the inflation report. It rose to 2% against 1.94% on Wednesday evening.
The two-year Treasury yield, which moves more in line with expectations of what the Federal Reserve will do with short-term rates, rose to 1.71% from 1.68%.
On Wall Street, the losses were widespread. Big tech companies were among the heaviest hitters in the market. Chip and software companies fell sharply. Micron Technology fell 4.7% and Advanced Micro Devices fell 4.1%
On the gain side, Amazon soared 5.4% after announcing a 20-for-1 stock split and approving a buyback program of up to $10 billion of its stock.
Continued market volatility is likely in the coming days as conflict rages in Ukraine.
“Markets seem to have been hanging onto a few somewhat less dismal indexes as an excuse to rally,” ING economists said in a report after stocks jumped on Wednesday and early Thursday. “The basis for this optimism – it’s actually quite thin.”