Stocks Down As Inflation Heats Up  Image: Bigstock Stocks plunged on Friday, and closed lower for the week, yet again. The Consumer Price Index report that everyone was waiting for on Friday, came in higher than expected at 8.6% y/y vs. the consensus for 8.2%, which tanked stocks.
This was a disappointment given the narrative by some that inflation might have already peaked. With the April report coming in at 8.3%, which was a bit under March's 8.5%, there was hope that the downtick would continue for another month. But it was not to be, as energy and food prices continued to soar. For what it's worth, ex-Food and Energy, the CPI came in at 6.0% y/y vs. last month's 6.2%. So the hoped for moderation was seen in that iteration. But that's of little consolation given we all have to eat, and oil is used in so many things beyond just fueling our tanks and powering our homes. With inflation now at a new 41-year high, recession fears instantly grew. And talk of the Fed slowing things down to 25 basis point hikes after July (the Fed is widely expected to raise rates by 50 basis points at their June meeting, and then again in July), suddenly shifted to suggestions they could raise by 50 or 75 basis points – and not even wait until the September FOMC meeting, but do it in August, in between meetings, or maybe even in June or July. The Fed will announce their next rate hike at the conclusion of their 2-day FOMC Meeting on Wednesday, June 15th, at 1:00 PM ET. The only saving grace on Friday was that, in spite of the drubbing that stocks took, the indexes remained above their lows from 3 weeks prior. While that still supports the idea that stocks may have already bottomed, the difference isn't that much. And from the all-time highs to Friday's close, the Dow is down by -14.7% (correction territory), the S&P is down by -18.7% (correction territory), and the Nasdaq is down by -29.4% (bear market territory). So all eyes will be on the Fed this week. In the meantime, we'll see if the market can stay above their previous lows, or if they'll give way. Let me also say, in spite of the relentless inflation, and the overall somber mood in the market, there are still plenty of positives in the economy right now that are getting virtually ignored, which includes the strength in household spending, fixed business investment, industrial production, and, of course, the labor market. And with the Fed expecting GDP to 'advance at a solid pace over the remainder of the year,' the market will eventually have to take notice. Short-term and medium-term price action and concerns can oftentimes run contrary to the bigger picture. Nonetheless, it's still important to keep your eye on what the bigger picture still looks like. Because one day, the market will get back to paying attention to it. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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