After moving sharply lower early in the session, stocks continue to see substantial weakness in afternoon trading on Friday. With the steep drop on the day, the major averages are extending the sell-off seen over the course of the previous session.
The major averages have moved roughly sideways in recent trading, lingering near their worst levels of the day. The Dow is down 847.44 points or 2.6 percent at 31,425.35, the Nasdaq is down 410.30 points or 3.5 percent at 11,343.92 and the S&P 500 is down 115.23 points or 2.9 percent at 3,902.69.
The extended sell-off on Wall Street comes as a Labor Department report showing consumer prices in the U.S. shot up by more than expected in the month of May has led to renewed concerns about the outlook for interest rates.
The Labor Department said its consumer price index jumped by 1.0 percent in May after rising by 0.3 percent in April. Economists had expected consumer prices to increase by 0.7 percent.
With the bigger than expected monthly increase, the annual rate of consumer price growth accelerated to 8.6 percent in May from 8.3 percent in April, showing the biggest surge since December 1981. The annual growth was expected to be unchanged.
Excluding food and energy prices, core consumer prices climbed by 0.6 percent in May, matching the growth seen in the previous month. Core prices were expected to rise by 0.5 percent.
Meanwhile, the annual rate of core consumer price growth slowed to 6.0 percent in May from 6.2 percent in April. Economists had expected the pace of growth to decelerate to 5.9 percent.
The bigger than expected increase in consumer prices is likely to convince the Federal Reserve to follow through on its plans to aggressively raise interest rates in an effort to combat inflation.
The Fed is scheduled to announce its latest monetary policy decision next Wednesday, with the central bank widely expected to raise interest rates by another 50 basis points.
Michael Pearce, Senior U.S. Economist at Capital Economics, said the inflation data raises the possibility the Fed could increase rates by 75 basis points next week.
“The bigger increases in core prices a year ago meant that core inflation still edged down to 6.0% from 6.2%, but there is very little in the details of this report to suggest that inflationary pressures are easing,” Pearce said.
He added, “Together with the continued strength of the latest activity data, that bolsters the argument of the hawks at the Fed to continue the series of 50bp rate hikes into September and beyond, or even to step up the size of rate hikes at coming meetings.
Adding to the negative sentiment, a separate report released by the University of Michigan showed consumer sentiment in the U.S. has tumbled to its lowest level on record in the month of June.
The preliminary data showed the consumer sentiment index plunged to 50.2 in June from 58.4 in May. Economists had expected the index to edge down to 58.0.
“Consumer sentiment declined by 14% from May, continuing a downward trend over the last year and reaching its lowest recorded value, comparable to the trough reached in the middle of the 1980 recession,” said Surveys of Consumers Director Joanne Hsu.
Oil service stocks have come under considerable selling pressure over the course of the session, dragging the Philadelphia Oil Service Index down by 5.1 percent.
The weakness in the sector comes amid a steep drop by the price of crude oil, with crude for July delivery slumping $1.91 to $119.60 a barrel.
Substantial weakness also remains visible among banking stocks, as reflected by the 4.4 percent nosedive by the KBW Bank Index.
Housing stocks also continue to see significant weakness in afternoon trading, resulting in a 4.1 percent plunge by the Philadelphia Housing Sector Index.
Brokerage, airline and retail stocks have also shown notable moves to the downside on the day, while gold stocks are among the few groups bucking the downtrend.
In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan’s Nikkei 225 Index slumped by 1.5 percent, while Hong Kong’s Hang Seng Index fell by 0.3 percent.
The major European markets also showed significant moves to the downside on the day. While the German DAX Index plunged by 3.1 percent, the French CAC 40 Index dove by 2.7 percent and the U.K.’s FTSE 100 Index tumbled by 2.1 percent.
In the bond market, treasuries have moved sharply lower over the course of the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 12.7 basis points at 3.171 percent.
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