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End of Day Brief - Wednesday May 12 - Stocks drop on inflation fears

SP 5004063.04-89.06(-2.14%)
10-yr Note -4/321.670
NYSEAdv 450 Dec 2814 Vol 1.1 bln
NasdaqAdv 914 Dec 2832 Vol 4.7 bln

Industry Watch

Strong: Energy
Weak: Information Technology, Consumer Discretionary, Materials, Industrials

Moving the Market

-- The Consumer Price Index report for April was much hotter than expected

-- The 10-yr yield rose eight basis points to 1.70%

-- Apple (AAPL) fell below its 200-day moving average (122.96)

-- De-risking efforts

Hot CPI report fuels market selling

Dow -681.50 at 33587.66, Nasdaq -357.75 at 13031.71, S&P -89.06 at 4063.04

[BRIEFING.COM] The S&P 500 fell 2.1% on Wednesday in an orderly retreat, as inflation concerns were fueled by the noticeably hot Consumer Price Index (CPI) report for April. The Nasdaq Composite (-2.7%) and Russell 2000 (-3.3%) underperformed with steeper losses, while the Dow Jones Industrial Average declined 2.0%.

Specifically, total CPI rose 0.8% m/m in April ( consensus +0.2%) while core CPI, which excludes food and energy, rose 0.9% m/m in April ( consensus +0.3%). On a year-over-year basis, total CPI was up 4.2%, and when looking at the last six months to exclude base effect comparisons for April, it's running at an annualized pace of 5.0%.

The inflation-sensitive 10-yr yield settled higher by eight basis points to 1.70% after trading flat prior to the report. Accordingly, this spike in rates functioned as an additional headwind for the growth stocks, which have struggled mightily this month under negative momentum and rotational factors.

Apple ($AAPL 122.77, -3.14, -2.5%) fell below its 200-day moving average (122.96) for the first time since April 2020, further curbing risk sentiment in technology stocks and the broader market. Ten of the 11 S&P 500 sectors closed lower, led by the consumer discretionary (-3.3%) and information technology (-2.9%) sectors. The Philadelphia Semiconductor Index dropped 4.2%.

The energy sector (+0.1%) was up as much as 3.0% today, largely due to the continued rise in oil futures ($65.95/BBL, +0.70, +1.1%) and RBOB futures ($2.16/GAL, +0.02, +0.9%), but barely closed higher. Gasoline futures were driven by reports highlighting the long lines at gas stations in some Southeastern states due to the Colonial Pipeline shutdown.

While Fed officials, including Fed Vice Chair Clarida today, have consistently maintained the view that inflation pressures should be transitory, the thought that the central bank might have to act sooner than it would like possibly contributed to the buyers' strike.

Investors sought safety in cash, as equities and longer-dated Treasuries declined together. The U.S. Dollar Index rose 0.7% to 90.74. The CBOE Volatility Index (27.59, +5.75, +26.3%) spiked 26%, representing a rush for downside protection. The 2-yr yield was unchanged at 0.15%.

As an aside, the S&P 500 extended its three-day decline to 4.0% and closed 13 points above its 50-day moving average (4050).

Reviewing Wednesday's economic data, which featured the Consumer Price Index for April:

  • Total CPI increased 0.8% month-over-month in April ( consensus +0.2%) while core CPI, which excludes food and energy, surged 0.9% month-over-month ( consensus +0.3%), driven by a 10.0% increase in used car prices. That was the largest monthly increase in core CPI since April 1982. On a year-over-year basis, total CPI was up 4.2% -- the largest 12-month increase since September 2008 -- and core CPI was up 3.0% versus 1.6% for the 12 months ending in March.
    • The key takeaway from the report isn't so much the year-over-year numbers, which were fueled by base effects, as it is the monthly numbers. They are running hot indeed. Looking at the last six months only, which neutralizes some of the easy base effect comparisons, total CPI is running at an annualized pace of 5.0% while core CPI is running at 3.0%.
  • The Treasury Budget for April showed a $225.6 bln deficit, versus a $738.0 bln deficit in the same period a year ago.
    • The budget data is not seasonally adjusted, so the April deficit can't be compared to the March deficit of $659.6 bln.
  • The weekly MBA Mortgage Applications increased 2.1% following a 0.9% decline in the prior week.

Looking ahead, investors will receive the Producer Price Index for April and the weekly Initial and Continuing Claims report on Thursday.

  • Dow Jones Industrial Average +9.7% YTD
  • S&P 500 +8.2% YTD
  • Russell 2000 +8.1% YTD
  • Nasdaq Composite +1.1% YTD

Source (

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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