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Seeing the inflation data, investors appear to take capital away from some sectors of the stock market like tech and pump it into other sectors.
The released economic performance data for October shows inflation is not getting any better, and as such fueled the retreat being seen in the stock market at the moment.
The Nasdaq Composite (INDEXNASDAQ: .IXIC) slipped 1.66% to 15.622,70 after shedding 263.84 points. Having topped an All-Time High (ATH) back in October, the S&P 500 (INDEXSP: .INX) retreated by 0.82% to 4,646.71, a figure that still places it at par with its previous high. The Dow Jones Industrial Average (INDEXDJX: .DJI) also shed 240.04 points atop a 0.66% loss to end Wednesday’s trading session at 36.079,94.
An unfavorable sell-off in the 30-year bonds contributed to the retracement in the stock market, as the yield on the benchmark 10-year Treasury jumped 11 basis points on Wednesday.
“The CPI report today contributed to the weakness,” Liz Ann Sonders, Charles Schwab chief investment strategist, said. “And to some degree, the equity market will key off of the bond market, which has been the case for much of this year.”
The Consumer Price Index (CPI) added 0.9% in October to the top 6.2%, the highest annual gain since 1990.
“Wednesday’s Consumer Price Index showed another month of inflation data well above the Federal Reserve’s inflation target, primarily due to continued supply chain issues and labor shortages. If inflation doesn’t subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” Nancy Davis, founder of Quadratic Capital Management, said.
The surging inflations have pushed investors’ expectations in relation to when the Federal Reserve will hike interest rates to help cushion the impacts of the growing inflation. As reported by CBDC, the fed funds futures market now sees greater odds of the central bank’s first full rate hike coming in July 2022.
Stock Market Plunge and Surge
Seeing the inflation data, investors appear to take capital away from some sectors of the stock market like tech and pump it into other sectors with the likelihood to benefit from the potential interest rate hike, like banking.
As a result, Meta Platforms Inc (NASDAQ: FB), formerly Facebook Inc dropped 2.3% to $327.64. Amazon.com Inc (NASDAQ: AMZN) closed the previous trading session down 2.63% to $3,482.05 and the trio of Apple Inc (NASDAQ: AAPL), Netflix Inc (NASDAQ: NFLX), and Alphabet Inc (NASDAQ: GOOGL) plunged by 1.92%, 1.38%, and 2.03% respectively. All the FAANG stocks, except NFLX, are seeing mild share resurgence in the Pre-Market.
With funds flowing broadly out of tech stocks, the released CPI data fueled a mild rally in Wells Fargo & Co (NYSE: WFC) which recorded a 0.94% growth to $50.36, and Bank of America Corp (NYSE: BAC) which grew by 0.75% to $47.23.
Investors also sought other tangible assets that can provide the needed cushion against inflation including Gold and Bitcoin. Following the massive accumulation of BTC, the coin printed a new ATH of $68,789.63 shortly after the inflation data was released.