Dow adds 400 points despite another inflation reading that upset past expectations

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Topline

Looking ahead to their worst three-day period since October, stocks added to the week’s massive losses on Thursday, despite the Bureau of Labor Statistics revealing that the country’s manufacturers paid higher prices than expected last month – a Warning sign for consumers prices as inflation fears continue to grow.

Highlights

The Dow Jones Industrial Average jumped 433 points, or 1.3%, to 34,020 on Thursday, while the high-tech S&P 500 and Nasdaq added around 1.2% and 0.7%, respectively, to 4. 112 and 13,124 points.

The hardest hit stocks of the week led to a partial rally in the market, with components from Dow Home Depot, Travelers and JPMorgan climbing 2.5% each on Thursday, while chipmakers Lam Research and Applied Materials lead the market. Nasdaq, climbing nearly 5% each.

Despite Thursday’s gains, the Dow, S&P and Nasdaq are still down 2%, 3% and 4%, respectively, since Friday, as investors grappling with the country’s largest gas pipeline temporarily shut down operations – leading to gas shortages and fear-induced prices. spikes – and the highest monthly consumer price index inflation in nearly 13 years.

Released Thursday morning, the Bureau of Labor Statistics monthly Producer Price Index, an inflationary measure of prices paid to producers, stood at 6.2% in April, above the 5.8% expected by analysts and at a sharp increase from 4.2% in March. .

Spurred on by rising food and energy prices, the report is expected to “add to recent inflationary signals,” Morgan Stanley analysts said in a morning note to clients as the index is often considered as a forward-looking indicator of consumer prices.

In a potentially promising sign for the U.S. economy, new jobless claims fell to a pandemic low of 473,000 last week (on a seasonally adjusted basis) – exceeding the 500,000 new claims economists expected as businesses continue. to reopen and the pace of layoffs is slowing.

Crucial quote

“Increasing demand leading to higher prices isn’t necessarily a bad thing,” Mace McCain, chief investment officer at Frost Investment Advisors said Thursday at $ 5 billion (in assets). “Some inflationary pressures could be good for the market, bringing new capacity into service faster and leading to a more robust rebound. An increase in wages can also lead to greater productivity as the workforce returns to work.”

Key context

Markets hit new highs this year until inflation pressures hit a tipping point this week ahead of the CPI reading. The Dow Jones plunged more than 1,000 points in the first three days of this week, while the high tech Nasdaq plunged nearly 8% below a late April high. Experts have been warning for months that inflation is now the biggest risk for stocks this year, and with historically low prices at the height of pandemic uncertainty last year, readings are unlikely. Inflation in the coming months will drop below the Federal Reserve’s long. -permanent inflation target of 2%. It’s possible that another round of larger-than-expected inflation readings will cause the Fed to rethink its accommodative policy of near-zero interest rates and $ 120 billion in monthly asset buybacks, which would likely do drop stocks again.

Further reading

Unemployment claims hit new pandemic low, but 16.9 million Americans still receive unemployment benefits (TBEN)

Inflation climbed 4.2% in April – hitting a 13-year high as prices worried the market (TBEN)

Dow drops 300 points: stocks slide third day after ‘huge’ inflation reading (TBEN)

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