U.S. markets slumped on Tuesday following the release of a fresh economic report that affirmed red-hot inflation levels, sending tech stocks spiraling for the second trading session this week.
All three major indexes were down. The S&P 500 slid 34.67 points to 4,634.30, and the Dow dipped 105.26 points, falling -0.30% to 35,545.69. The tech-focused Nasdaq shed 175.64 points to 15,237.64
The Labor Department said wholesale prices soared by a record 9.6% in November from a year earlier, the fastest annual pace on record for the indicator and a sign inflation is likely to persist well into 2022.
With inflationary pressures on the rise, investors are bracing for a faster rollback of pandemic-era stimulus by the Federal Reserve, which commenced its two-day policy-setting meeting earlier today. The bank is expected to release its final monetary policy statement of 2021 with remarks from Federal Reserve Chair Jerome Powell Wednesday. An updated Summary of Economic Projections outlining individual members’ outlooks for economic conditions and interest rates is set to accompany the statement.
Investors have anticipated a ramp up in the cessation of tapering as key figures point to more persistent levels of inflation but are weighing how aggressive the Fed may be in measures to curb it.
“We don’t believe he’s spooked, where he will have to move too fast,” People’s United Advisors Executive vice president and chief investment officer John Traynor told Yahoo Finance live. “We’ll need to wait and see what kind of language comes out, but a quickening of the pace is certainly in the cards, and it’s certainly justified, but moving too fast and then moving too fast to raise rates would really upset the market.
GameStop (GME) and AMC (AMC) closed down nearly 14% and 15%, respectively following weekly declines for the meme-stock darlings.
Shares of Microsoft (MSFT) were down more than 3.38% at the end of the trading session, contributing to the Dow’s losses. The software giant posted its biggest drop since last October, according to Bloomberg data, adding to yesterday’s loss of nearly 1% at close.
Bank of America’s monthly fund manager survey out Tuesday found investors are hoarding cash amid Omicron variant concerns and the threat of higher interest rates. The bank reported allocations to cash among investors jumped 14 percentage points in December from November. Fund managers were net 36% overweight cash, posting the highest exposure to the asset class since May 2020.
More economic data is set to come out of Washington this week. November retail sales, out on Wednesday, are expected to rise by 0.8%, according to Bloomberg consensus estimates. And November housing starts are forecasted to see a month-over-month increase of 3.3%.
Meanwhile, Morgan Stanley projects the U.S. unemployment rate will drop to 3% in 2022.
“It’s stunning to see how much the rate has fallen in the last five months,” Morgan chief U.S. economist Michael Feroli told Yahoo Finance Live. “We expect that pace of decline to slow, but it doesn’t take much to get below 4%, even with a tick up in the labor participation rate which has been depressed over the last year and a half.”