“Investors look as if they increasingly fear the central bank will become more aggressive with the pace of interest rates to try and curb inflation, given May’s cost of living figures were higher than expected,” Russ Mould, investment director at AJ Bell, said in a commentary Tuesday. “A decision to raise rates by more than half a percentage point could cause chaos on the markets and put a bigger dent into investors’ portfolios than they’ve already seen this year.”
The S&P 500, which plunged 3.9 percent Monday to push into a bear market — defined as a 20 percent drop from a recent high — edged up 0.5 percent after the opening bell Tuesday. The tech-heavy Nasdaq rebounded 0.7 percent after losing more than 4.7 percent the day before. The Dow Jones industrial average edged up 0.2 percent.
The three indexes come into Tuesday’s session with deep deficits on the year: The S&P 500 has slumped 21 percent in 2022 and the Dow 16 percent. The Nasdaq, deep into its own bear market, has shed nearly 31 percent.
Cboe’s volatility index, known as Wall Street’s “fear gauge,” is up 92 percent for the year according to MarketWatch.
“Fears of stagflation have hit the highest level since 2008, while global economic growth optimism has sunk to a record low,” Ivan Feinseth, chief investment officer at Tigress Financial Partners, said Tuesday in a commentary.
Cryptocurrencies continued their precipitous plunge as investors flocked to safer ground, with bitcoin careening below $22,000. Back in November, it was trading above $65,000.
Coinbase, the biggest cryptocurrency trading platform, announced Tuesday that it would slash its workforce by 18 percent — at least 1,000 positions by current head counts — as it prepares for another possible recession and “crypto winter,” according to chief executive Brian Armstrong. The company’s shares slumped 7 percent in early trading.
Armstrong’s comments echo those of Jamie Dimon, Elon Musk, and other executives that have been signaling caution about the state of the economy. More than 15,000 tech workers were laid off last month according to data from Layoffs.fyi, the highest since the early days of the pandemic.
2022 has already delivered a nonstop storm of uncertainty for investors and companies, from a vexed supply chain to labor shortages, soaring prices, and the vast fallout from the war in Ukraine. Now, the outlook is only getting tougher, dragging down even big names that seemed Teflon throughout much of the pandemic: Amazon’s shares are down nearly 40 percent for the year; Tesla, 46 percent; Meta, 51 percent; and Peloton 72 percent.
In May, consumer prices shot up another 1 percent compared with April to a pandemic-era peak of 8.6 percent according to data from the Bureau of Labor Statistics, as soaring energy, housing, and food prices drive up costs at the fastest pace in 40 years.
Wholesale prices are up 10.8 percent from a year ago, according to a fresh reading of the Producer Price Index on Tuesday, near a record annual pace as inflation puts pressure on every rung of the supply chain. Transportation and warehousing costs jumped 2.9 percent, suggesting supply chain pressures will continue to weigh on businesses and consumers.
Consumer spending is the primary engine of the U.S. economy, powering roughly 70 percent of the country’s gross domestic product. But the evidence is mounting that households are being forced to cut back amid the surging prices; consumer sentiment plummeted 14 percent in May to a record low according to the University of Michigan’s consumer sentiment index.
The national average for gas surpassed $5.01 Tuesday, another fresh high according to data tracked by AAA. A year ago, the national average was $3.08.
Crypto exchange Coinbase is laying off 18% of its employees as the digital currency market continues to crumble.
U.S. producer prices increased solidly in May as the cost of gasoline surged, another sign of stubbornly high inflation that could force the Federal Reserve to raise interest rates by as much as 75 basis points on Wednesday.
The report from the Labor Department on Tuesday followed on the heels of news last week that consumer prices accelerated in May, culminating in the largest year-on-year increase since 1981. Inflation, a global phenomenon, has been worsened by Russia's dragging war against Ukraine, which is boosting oil and grain prices.
"Producer price increases continue to shoot higher which means even more pipeline pressures for the consumer in the months to come," said Christopher Rupkey, chief economist at FWDBONDS in New York. "This argues for a strong response from Fed officials to somehow get out in front of market expectations and tell the public they are winning the inflation fight."
The producer price index for final demand rose 0.8% last month after advancing 0.4% in April. A 1.4% jump in the prices of goods accounted for nearly two-thirds of the rise in the PPI. Goods prices, which rose 1.3% in April, were driven by rising costs for energy products.
Wholesale gasoline prices rebounded 8.4%, making up 40% of the rise in the costs of goods, after falling 3.0% in April. Jet fuel increased 12% after shooting up 14.8% in April. There were also increases in the cost of residential natural gas, steel mill products, and diesel fuel.
But wholesale food prices were unchanged after increasing 1.4% in the prior month as the cost of beef and veal fell 9.5%, offsetting an increase in processed young chickens.
In the 12 months through May, the PPI increased 10.8% after accelerating by 10.9% in April. Last month's increase in the PPI was broadly in line with economists' expectations.
INFLATION HOT
Government data last Friday showed a broad increase in consumer prices in May, which raised concerns that inflation was likely become entrenched. Those fears were amplified by a University of Michigan survey last week showing consumers' five-year inflation expectations jumped to a 14-year high of 3.3% in early June from a final reading of 3.0% in May.
With inflation far exceeding the Fed's 2% target by all measures and pressuring consumers, risks of the economy stagnating or plunging into recession next year are growing.
The U.S. central bank is expected to raise its policy interest rate for a third time this year on Wednesday, with a three-quarters-percentage point increase now seen as the likely outcome and the possibility of signals for more large hikes to combat inflation. read more
China's zero COVID-19 policy is dislocating supply chains, keeping goods prices high, adding to the inflation fires. A shortage of workers is driving up wages, resulting in higher prices for services.
The cost of wholesale services rebounded 0.4% in May after declining 0.2% in April. A 2.9% rise in prices of transportation and warehousing services accounted for more than half of the broad-based advances in services. Truck transportation of freight rose 2.9%.
There were also increases in the costs of services related
to securities brokerage and dealing, machinery, and equipment wholesaling as well as chemicals and allied products wholesaling, automobiles and automobile parts retailing and transportation of passengers.
But margins for fuels and lubricants retailing plunged 21.7%. Fees for portfolio management and prices for hotels and motel rooms fell.
Excluding the volatile food, energy, and trade services components, producer prices rose 0.5% in May. The so-called core PPI gained 0.4% in April. In the 12 months through May, the core PPI increased 6.8% after rising by the same margin in April.