Stock Markets Falls On Highest Inflation In 40 Years; Fed Expected To Raise Rates Even Further

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The S&P 500 closed 2.9% lower and the Dow Jones Industrial Average dropped 2.7%. The Nasdaq composite slid 3.5%. Consumer discretionary, financials and the technology sector suffered the most, each down more than 3%.

The small-cap Russell 2000 fell 2.7%.

Preliminary data showed lower volume on the Nasdaq and higher volume on the NYSE.

For the week, the S&P fell 5.1%, the Dow dropped 4.4%, and the Nasdaq fell 5.6%.

Among big cap stocks, Amazon (IBD) dropped 5.8%. The Financial Select Sector SPDR (XLF) gapped down more than 3.5% and was down 6.8% for the week. Wells Fargo (WFC), Goldman Sachs (GS), JP Morgan Chase (JPM) and Citigroup (C) led the major bank stocks down.

Big techs Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOGL) gapped down but remain above their May lows.

The Worst Inflation In Four Decades

The consumer staples and utilities sectors escaped Friday’s carnage. Walmart (WMT) gained 1%. Duke Energy (DUK) gained 0.5%.

Some investors flocked to gold shares to escape rising inflation and fears of a recession. The S&P Gold Shares ETF (GLD) gained 1.3%, but it’s still below the 50-day moving average, a potential resistance level to watch.

The consumer price index rose 8.6% in May from a year ago, an increase from 8.3% in April, and up 1% from the prior month. Core prices, which exclude food and energy components, rose 0.6% from April. The annual core inflation rate eased to 6% from the prior month’s 6.2%. The 8.6% CPI rate is the highest since December 1981.

The Federal Reserve is expected to raise rates by 50 basis points at Wednesday’s meeting. But Friday’s inflation report boosted the chances of additional 50-basis-point hikes in the coming months. CME Group’s FedWatch shows big odds of at least half-point hikes at the June, July and September meetings, and slightly-better-than-even odds of a half-point hike in November.

“Inflation keeps climbing and it’s becoming more entrenched,” Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance. “The Fed is going to face increasing pressure to get inflation under control and will need to raise interest rates by at least 0.5% for the next three meetings. And by the end of the year, they are going to need to reevaluate their balance sheet reduction plans, in order to increase them.”

Also Friday, the University of Michigan’s consumer confidence survey tumbled to 50.2 from 58.4 in May. Economists had expected 58.5.

Recession Fears Weigh On Stock Market

In company news, chipmaker Advanced Micro Devices (AMD) painted a bright picture of its growing market opportunity, especially in data centers, at an analyst day presentation. But AMD stock fell more than 3% Friday.

The company said its total addressable market is now $300 billion, vs. a prior estimate of $79 billion. AMD expanded its scope with its recent acquisitions of Xilinx and Pensando Systems.

DocuSign (DOCU) dropped nearly 25% after reporting a miss on Q1 earnings. DOCU reported a loss of 14 cents per share, while analysts’ consensus was looking for a profit of 46 cents, according to FactSet.

The Innovator IBD 50 ETF (FFTY) tumbled 2.5%. A few IBD 50 stocks hit sell signals.

Linde (LIN) gapped below its 200-day moving average, bringing its decline from the 332.41 buy point to more than 7%. That results in a sell signal a little more than a week since its breakout from a flat base.

New Fortress Energy (NFE) fell below its 50-day moving average and is more than 13% below last week’s breakout entry at 49.40. The stock was removed from IBD Leaderboard today.

Darling Ingredients (DAR) also tumbled below its 50-day line and also has triggered the loss-cutting sell rule.

Follow Michael Molinski on Twitter @IMmolinski

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