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US Stocks Fall as Inflation Remains Hot12/09 15:59

   A choppy day of trading on Wall Street ended with stocks broadly lower 
Friday, after a new report showed that inflation is slowing less than hoped 
just days before Federal Reserve officials are expected to raise interest rates 

   (AP) -- A choppy day of trading on Wall Street ended with stocks broadly 
lower Friday, after a new report showed that inflation is slowing less than 
hoped just days before Federal Reserve officials are expected to raise interest 
rates again.

   The S&P 500 and Nasdaq composite each fell 0.7%, while the Dow Jones 
Industrial Average dropped 0.9%. Smaller company stocks fell even more, pulling 
the Russell 2000 index 1.2% lower. The indexes marked their first losing week 
in the last three.

   The U.S. government reported that prices paid at the wholesale level were 
7.4% higher in November than a year earlier. That's a slowdown from October's 
wholesale inflation rate of 8.1%, but it was still slightly worse than 
economists expected.

   "There's a sense that inflation has plateaued, but that said it's still 
sticky and the Fed is most likely going to have to push harder," said Quincy 
Krosby, chief equity strategist for LPL Financial.

   The nation's high inflation, along with the Federal Reserve's 
economy-crunching response to it, have been the main reasons for Wall Street's 
painful tumble this year. Stocks have recovered some of their losses recently, 
as inflation has slowed since hitting a peak in the summer. But it remains too 
high, raising the risk the Federal Reserve will have to keep hiking interest 
rates sharply to get it fully under control.

   Treasury yields climbed as traders stepped up bets for how high the Fed will 
ultimately take interest rates. The central bank has already hiked its key 
overnight rate to a range of 3.75% to 4%, up from basically zero as recently as 

   Its next decision on rates is scheduled for next week, and the general 
expectation is for it to raise rates by another half of a percentage point.

   Friday's economic data did not sway Wall Street's expectations on that, not 
after several Fed officials hinted recently they may step down from their 
string of four straight hikes of 0.75 percentage points. Such a dial down would 
mean less added pressure on markets and the economy. Even so, the Fed has said 
it may still take rates higher than markets expect before taking a pause.

   Higher rates hurt the economy by making it more expensive for companies and 
households to borrow money, which forces them to cut back on spending. If rates 
go too high, it can cause a recession. They also drag down on prices for stocks 
and all kinds of other investments.

   A separate report on Friday showed U.S. households are paring expectations a 
bit for inflation in the future. That's key for the Fed, which wants to prevent 
a vicious cycle where households rush to make purchases on fears prices will 
rise further. Such buying activity only fans inflation higher.

   Households are forecasting inflation of 4.6% in the year ahead, according to 
the survey by the University of Michigan. That's the lowest such reading in 15 
months, though still well above where it was two years ago. Expectations for 
longer-run inflation remain stuck in the 2.9% to 3.1% range where they've been 
for 16 of the last 17 months, at 3%.

   Overall sentiment among consumers was also stronger than economists 
expected, according to the University of Michigan's preliminary reading. That's 
good news for the economy, which gets most of its strength from spending by 
such consumers. But it can also complicate the Fed's task. If such spending 
remains resilient, it could keep up the pressure on inflation.

   The last big piece of data on inflation before the Fed's next decision 
arrives on Tuesday, when economists expect the consumer price index to show 
that inflation slowed to 7.3% last month from 7.7% in October.

   "The two most important questions for next year are how fast inflation will 
drop and how much will it need to drop for the Fed to stop tightening," 
foreign-exchange strategists wrote in a BofA Global Research report. "We are 
concerned markets too optimistic on both."

   Roughly 75% of the stocks in the S&P 500 closed lower Friday, with health 
care, technology and energy among the sectors that weighed down the market 
most. The benchmark index fell 29.13 points to 3,934.38. It finished 3.4% lower 
for the week and is now down 17.5% this year.

   The Dow fell 305.02 points to 33,476.46, while the Nasdaq slid 77.39 points 
to 11,004.62. The Russell 2000 dropped 21.63 points to 1,796.66.

   The yield on the two-year Treasury, which tends to track expectations for 
Fed action, rose to 4.36% from 4.26% just before Friday's inflation report was 
released. It was at 4.31% late Thursday.

   The yield on the 10-year Treasury, which helps dictate rates for mortgages 
and other loans, rose to 3.58% from 3.49% late Thursday.

   In overseas stock markets, European indexes closed higher after recovering 
from a pullback following the U.S. inflation report.

   Chinese benchmarks rose Friday on reports the government is planning new 
measures to support the ailing property sector, which has been a severe drag on 
growth over the past several years.

   The relaxation of some of China's "zero-COVID" rules is also raising hopes 
the economy will gain momentum, though experts say it will take months for 
tourism and other business to recover from the disruptions of the pandemic. It 
historically has been a major source of the global economy's growth.

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