Wall Street’s fears of rising US inflation were justified when the government reported a 4.2% jump in consumer price growth in April, the worst in 12 years. US stock indices reacted with a sharp drop. The Dow Jones and S&P 500 fell the biggest since February, with the Nasdaq Composite down 2.6%.
The fall in shares on the US stock exchanges on Thursday was one of the largest since the beginning of the year. The reason – the data of the Ministry of Labor on the growth of inflation, measured by the consumer price index, to 4.2% in April compared to 2.6% in March and above market expectations of 3.6%.
This is the fastest growing US inflation in more than 12 years and investors are worried that the situation could undermine the country’s economic growth. Rising prices could reduce consumer spending in America, which powers two-thirds of the nation’s economy, as well as lower revenues and profits for companies.
Wall Street is worried that the US Federal Reserve, which is currently pursuing a zero interest rate policy, may take tightening measures, which will reflect a downturn in the stock market.
On Thursday, major US stock indexes fell sharply, strengthening the decline of the last week:
The Dow Jones on Thursday fell 681 points, or 1.99%, the fall for the week was -3.4%;
S&P 500 Index lost 2.1% and 4% on Thursday and over the past week, respectively;
The Nasdaq Composite tech index fell 2.6% on Thursday, with a weekly loss of 5.24%.
The largest drop was shown by shares of the technology sector: Microsoft (MSFT) and Apple (AAPL) fell 2.94% and 2.5%, respectively, and the sectors of communications, financial, consumer, healthcare and others also suffered.
Thursday’s fall was preceded by a negative market reaction to a suggestion by US Treasury Secretary Janet Yellen that the Fed could raise interest rates if inflation rises sharply. Although the minister clarified that her words were not a forecast or a measure of pressure on the central bank, some analysts described them as a mistake that caused instability in the financial markets.
At the same time, economists point to favorable factors in the form of a large-scale vaccination against COVID-19 in the United States, a sharp rise in GDP in the first quarter and record consumer spending of Americans in March.
Inflation is often a healthy side effect of a growing economy, it is just important to control it, which the Fed is trying to convince in its statements that will allow the indicator to exceed the 2% target.
This violent market reaction is also due to a contrasting comparison with the fact that the inflation target in the US has remained virtually unchanged for most of the past decade.
Experts expect that volatility will persist at least in the coming days until new messages from the Fed that the data for one month will not change its policy.