Stocks drop as Wall Street prepares for inflation data

Stocks in the United States fell sharply on Thursday, as Wall Street fretted about critical inflation data due out on Friday. The S&P 500 was down 2.4 percent, and the Dow Jones Industrial Average was down 1.9 percent, or 640 points. The NASDAQ Composite Index dropped by 2.8 percent. The majority of the losses occurred in the final hour of trading, as selling intensified as the session came to a close.

Investors are anticipating the release of the latest Consumer Price Index (CPI) from the Bureau of Labor Statistics on Friday in order to gain further insight into how aggressively the Federal Reserve will raise interest rates. Inflation is expected to have continued in May, according to the reading. According to consensus estimates, headline inflation would climb at an annual pace of 8.3 percent in May, matching April’s reading, and 5.9 percent excluding food and energy prices.

The sell-off was triggered by disappointing labour market statistics released before the market opened, as well as confirmation from the European Central Bank that it intends to hike interest rates next month. Last week, 229,000 people applied for unemployment benefits, the highest number since January and an indication that the labour market is becoming more stressed. Prior to the release of this data, all three main indexes were forecasting gains of more than 0.4 percent at the open.

Oil prices fell somewhat but remained above $120 per barrel, and the 10-year Treasury yield rose to 3.06 percent, just above the 3% level that the 10-year had surpassed earlier this week for the first time since early May. Investors are still looking for signs of how the economy is faring in the face of tighter financial conditions, as well as how aggressive the Federal Reserve rate hike cycle will grow before a possible stop.

Last Friday’s robust May employment numbers undoubtedly conveyed to policymakers that present labour market conditions can survive further monetary tightening. As it fights inflation, central bank policymakers have taken clues from the labour market on the rate hike pace, with policy geared at cooling labour demand just enough to keep the unemployment rate from rising too high.

In a morning note, FWDBONDS Chief Economist Christopher S. Rupkey noted, “The surge in initial jobless claims does fit with anecdotal information offered by CEOs that they are closely watching their head counts, which frequently covers up for their actions where they are discreetly throwing away pink slips.” “One thing is certain: joblessness will only rise as inflation raises costs for every company across the country, necessitating cost-cutting measures that will inevitably fall on the backs of workers.”

Shares of Tesla (TSLA) closed marginally down in other markets after the electric vehicle’s price gained as much as 3% in early trading following a UBS upgrade to Buy. The electric vehicle behemoth is also “best positioned to become one of the top three global auto manufactures by 2030,” according to the research.