Wall Street’s main indexes fell more than 1% on Friday as a surge in consumer spending and inflation in January sparked concerns that the Federal Reserve will stick to its hawkish stance for longer. The personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation, shot up 0.6% last month after gaining 0.2% in December. In the 12 months through January, the PCE index accelerated 5.4% after rising 5.3% in December. The Associated Press has the story:
Wall Street drops after data shows hot inflation
Newslooks- NEW YORK (AP)
Stocks are falling on Wall Street Friday as dispiriting evidence keeps piling up to show inflation isn’t coming down as quickly as hoped.
The S&P 500 was 1.1% lower in early trading and on track for its third straight weekly loss. The Dow Jones Industrial Average was down 326 points, or 1%, at 32,827, as of 9:39 a.m. Eastern time, while the Nasdaq composite was 1.4% lower.
Stocks have dropped through February as a stream of reports have shown everything from inflation to the job market to spending by shoppers is staying hotter than expected. That’s forced Wall Street to raise its forecasts for how high the Federal Reserve will have to take interest rates and then how long to keep them there.
Higher rates can drive down inflation, but they also raise the risk of a recession because they slow the economy. They likewise hurt prices for stocks and other investments.
The latest reminder came Friday after a report showed that the measure of inflation preferred by the Fed came in higher than expected. It said prices were 4.7% higher in January than a year earlier, after ignoring costs for food and energy because they can swing more quickly and sharply than others. That was an acceleration from December’s inflation rate, showing the wrong momentum, and it was higher than economists’ expectations for 4.3%.
It echoed other data from earlier in the month that showed inflation at both the consumer and wholesale levels was higher than expected in January.
Other data Friday also showed that consumer spending returned to growth in January, jumping 1.8% from December. Such strength paired with the remarkably resilient job market raises hope that the economy can avoid a recession in the near term.
But it also can feed into upward pressure on inflation, and Wall Street worries it could push the Fed to raise rates even higher and keep them there even longer than it otherwise would. Investors’ hopes for a possible cut to rates later this year have largely washed out of the market.
Traders are now also placing bets on the Fed raising its key overnight rate above 5.25% and keeping them there through the end of the year. That’s higher than what the Fed was talking about in December.
Expectations for a firmer Fed have caused yields in the Treasury market to shoot higher this month, and they climbed further Friday.
The yield on the 10-year Treasury rose to 3.95% from 3.89% late Thursday. It helps set rates for mortgages and other important loans. The two-year yield, which moves more on expectations for the Fed, rose to 4.78% from 4.71%.
Tech and high-growth stocks once again were taking the brunt of the pressure. Investments seen as the most expensive, riskiest or making their investors wait the longest for big growth among the most vulnerable to higher rates.
Apple, Microsoft, Amazon and Tesla all fell more than 1.5% and were the heaviest weights on the S&P 500.
They were among plenty of company amid Wall Street’s wipeout. More than 90% of stocks in the S&P 500 fell.