Wall Street falls on inflation report

But Treasury yields pulled back on Tuesday following the inflation report. The 10-year yield slid to 2.72 per cent from 2.77 per cent late Monday. It was as high as 2.83 per cent overnight, before the inflation report’s release. The 10-year yield nevertheless remains well above the 1.51 per cent level where it began the year.

A measure of nervousness among stock investors also fell immediately after the inflation report.

Stocks elsewhere around the world were lower or mixed, as unease continues to hang over markets about the war in Ukraine, Chinese efforts to contain COVID outbreaks and where inflation and interest rates are heading.

In Asia, South Korea’s Kospi fell 1 per cent, Japan’s Nikkei 225 lost 1.8 per cent and stocks in Shanghai climbed 1.5 per cent. In Europe, Germany’s DAX lost 0.5 per cent, the French CAC 40 slipped 0.3 per cent and the FTSE 100 in London dropped 0.5 per cent.

The price of US crude oil climbed 7.1 per cent to $US100.97, keeping the pressure on high inflation. Brent crude, the international standard, rose 6.2 per cent to $US104.62.

Higher interest rates from the Federal Reserve would slow the economy, which would hopefully knock down high inflation. Consumer prices were 8.5 per cent higher in March than a year earlier, accelerating from February’s 7.9 per cent inflation rate and the highest since 1981. To bring it down, the Fed revealed in the minutes from its latest meeting that it’s prepared to hike short- term rates by half a percentage point, double the usual amount, at some upcoming meetings, something it hasn’t done since 2000.

The worry is the Federal Reserve may be so aggressive about hiking interest rates that it forces the economy into a recession.

Higher interest rates also put downward pressure on all kinds of investments, with those seen as the most expensive hardest hit. That’s because when investors are earning more in interest to own relatively safe bonds, they’re less willing to pay higher prices for riskier stocks. Technology and other high-growth stocks that have been some of the stock market’s biggest recent winners have been in the spotlight in particular.

On Tuesday, technology stocks were among the gainers in the S&P 500. Apple rose 0.9 per cent.

Energy stocks and retailers and other companies that rely on consumer spending also rose. Marathon Oil gained 5.4 per cent and Ross Stores rose 2.6 per cent.

Losses in health care and financial stocks helped keep the market’s gains in check. Pfizer fell 1 per cent and Wells Fargo slid 1.9 per cent.

More swings may be in store for stocks as companies prepare to report their earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other big-name companies will kick off the reporting season on Wednesday.

A key focus for investors during the latest round of earnings will be any sign of consumers pulling back on spending and how companies reacted, said Jack Janasiewicz, portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions.

“It all boils down to their margins and how are companies deal with rising costs,” Janasiewicz said.

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Earnings were able to stay at record levels through the end of last year as companies raised prices for their products and services enough to protect their profit margins. But the further acceleration of inflation may be straining that formula.

Used car dealership chain CarMax slumped 7.9 per cent after reporting disappointing earnings. The company said high prices for cars were discouraging buyers.

While they can swing sharply for many reasons in the short term, stock prices tend to track the path of corporate profits over the long term.

AP

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