Stocks Slip After Fed Minutes and Inflation Data

US stocks slid on Wednesday after fresh inflation data and the release of minutes from the Federal Reserve’s September rate-setting committee meeting.

The S&P 500 fell 11.81 points, or 0.3%, to 3577.03, a nearly two-year low. The Dow Jones Industrial Average lost 28.34 points, or 0.1%, to close at 29210.85. The Nasdaq Composite fell 9.09 points, or 0.1%, to 10417.10, a day after the tech-heavy index entered its second bear market of 2022, down more than 20% from its recent high of May 15 .August means.

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Investors were eager this week ahead of the release of the US consumer prices report, which was released on Thursday and will shed light on how much work the Fed still needs to do to stem decades of inflation. In recent months, inflation indicators have shown widespread price pressures on categories such as food and housing, while energy prices have eased.

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US suppliers increased the prices they charge their customers by 0.4% mom in September, according to data released on Wednesday. Economists polled by the Wall Street Journal had expected a 0.2% increase.

As inflation rises in the US, rising food and energy costs have pushed the nation’s most popular price index to its highest level in four decades. The WSJ’s Gwynn Guilford explains how the CPI works and what it can tell you about inflation. Image: Jacob Reynolds

“Inflation has certainly broadened and moved into areas that were more difficult,” said Kiran Ganesh, multi-asset strategist at UBS.

“Therefore, expectations have increased…that the Fed will need to keep rates higher for longer to bring down inflation.”

The Fed released minutes of its September meeting on Wednesday afternoon, showing officials concerned about persistently high inflation and anticipating that cutting prices and wages would likely require a weakening of the job market.

The Fed’s stance has increased the risk of a recession, but it doesn’t look like the economy is in one now, said Merk Investments strategist Nicholas Reece. In fact, a recession could not materialize until the second half of next year, he said. However, that likely means that the market will oscillate for a few more months before finally hitting a cycle bottom. “That’s one of the things that hangs over this market,” he said.

Corporate earnings over the next few weeks will also shed some light on how companies are dealing with price pressures. PepsiCo on Wednesday again raised its revenue outlook for the year as it continues to impose price increases on its snack foods and beverages, sending shares up $6.80, or 4.2%, to $169.39.

Traders working on the floor of the New York Stock Exchange last week.


Photo:

BRENDAN MCDERMID/REUTERS

The coming days will bring updates from a number of companies including Delta Air Lines and banks like JPMorgan Chase and Citigroup.

Mr Ganesh said earnings estimates for the rest of the year and 2023 are overly optimistic and pose another risk for shares in the coming months.

“If you look at the market performance so far this year, it can be explained pretty much entirely by movements in interest rates and bond yields,” said Mr. Ganesh. “Higher interest rates should mean lower growth and earnings expectations, and that’s not yet priced into the market.”

Investors continue to watch the turmoil in UK government bond markets, which have been very volatile since the government unveiled plans for large, debt-financed tax cuts last month. The Bank of England’s attempt to stem a broader market dysfunction, which had hit pension funds particularly hard, has had mixed results.

On Tuesday, BOE Governor Andrew Bailey confirmed the central bank’s plans to end its bond market intervention program as planned by Friday, sparking a sell-off in the British pound. The message was repeated by BOE officials on Wednesday.

UK markets were mixed. The pound rallied 1.2% to $1.1099 but UK government bonds, known as gilts, remained under pressure. The 30-year UK gilt yield briefly rose above 5%, a level last seen before central bank intervention. Yields rise when prices fall.

The US 10-year Treasury was down slightly to 3.901%.

“Fixed markets believe the BOE is not doing enough,” said Viraj Patel, a global macro strategist at Vanda Research. Despite the BOE’s pledge to halt asset purchases, Mr Patel still believes the central bank would step in to provide support if volatility threatens financial stability again.

“You’re not going to let this lead to some kind of chaos getting out of control,” he said.

Britain’s FTSE 100 fell 0.9% to 6826.15, while the pan-European Stoxx Europe 600 fell 0.5% to 385.88.

Asian equities were mixed. China’s benchmark Shanghai Composite rose 1.5% to 3025.51, while Hong Kong’s Hang Seng slipped 0.8% to 16701.03 and Japan’s Nikkei 225 index was little changed at 26396.83.

Write to Chelsey Dulaney at [email protected] and to Paul Vigna at [email protected]

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