Stocks rebound after inflation moderates slightly, giving investors hope that prices may have peaked
The stock market rallied on Wednesday even after consumer prices rose more than expected, and while experts believe inflation may have peaked, the Federal Reserve may still need to raise rates more aggressively as it will take some time to return to normal levels.
The Dow Jones Industrial Average rose 0.6%, or about 200 points, while the S&P 500 rose 0.5% and the tech-heavy Nasdaq Composite was flat.
Stocks rose despite higher-than-expected inflation, with prices jumping 8.3% year on year in April, according to news reports. Data published by the Ministry of Labour.
Although consumer prices were higher than expected by economists, the inflation rate in April slowed for the first time in eight months, from 8.5% in March: prices for food, housing , airlines and vehicles all rose, but gasoline prices fell about 6%. compared to last month, helping to offset some price gains.
Additionally, some experts are now predicting that inflation has likely peaked, although there remains much uncertainty about how long it will take for prices to return to normal.
Rates jumped after the monthly inflation reading: the yield on the benchmark 10-year Treasury rose back above 3% on Wednesday, with some investors worried about rising inflation leading to a slowdown of economic growth.
Tech stocks were hit hard, once again weighing on markets as investors continued to offload stocks in early trading: Apple, Netflix, Amazon and Tesla all fell nearly 1% or more before reduce their losses.
The peak of inflation is “probably behind us”, although prices will continue to exceed the Fed’s target until the end of 2023, says Bill Adams, chief economist at Comerica Bank. “April’s slowdown in inflation is largely a rebound from the spike in gasoline prices in March, which was a ripple effect of the Russian-Ukrainian war,” he explains. “Inflation was already very bad before the war drove up energy prices, and even after gasoline prices fell a bit in April, inflation is still very bad.”
The new inflation data spooked some investors, who continued to dump riskier assets like cryptocurrencies amid the ongoing market sell-off: Bitcoin price fell around 7% at around $29,000, according to Coin Metrics, from $40,000 last week.
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“The inconvenient truth is that the Fed is going to have to raise rates faster and at a higher level than many expected,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “There will be at least four 50 basis point rate hikes this year,” he predicted.
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