Dow lower, Nasdaq higher after CPI data shows inflation at new 41-year high

The Dow Jones Industrial Average traded lower late morning Wednesday, but was off its worst levels and the Nasdaq Composite index was higher in the wake of data showing U.S. inflation climbed to new 41-year high of 9.1% in June, as gasoline prices surged.

How are stock indexes trading
  • The Dow Jones Industrial Average
    lost 189 points, or 0.6% to 30,792

  • The S&P 500
    declined 10 points, or 0.3% to 3,808

  • The Nasdaq Composite
    gained 11.5 points, or 0.1% to 11,276

On Tuesday, the Dow industrials
fell 193 points, or 0.62%, to 30,981, the S&P 500
declined 0.9% to 3,819, and the Nasdaq Composite
dropped 0.9%, to 11,265.

The S&P 500 has lost 83.82 points, or 2.1%, over the last three trading days.

What’s driving markets

Inflation, in the shape of the June consumer price index report, remains the focus for traders on Wednesday.

Soaring gasoline prices in June drove the rate of U.S. inflation to 9.1%, a nearly 41-year peak. The CPI jumped 1.3% last month to mark the third time in the last four months it’s topped 1%. Economists polled by The Wall Street Journal had forecast a 1.1% advance.

“We continue to see new record highs for inflation and it will weigh heavily on the markets,” Greg Bassuk, chief executive at AXS Investments said in an interview. “We saw last month with CPI overshooting expectations, June ended up being really troubling for risk assets. And so we believe investors are increasingly concerned of even more aggressive Fed rate hikes and therefore the likelihood of exacerbating recessionary fears.”

After the CPI data was released, traders’ expectations for a 100 basis point rate hike by the Federal Reserve at its next meeting jumped to 42%, up from 7.6% on Tuesday, according to the CME FedWatch Tool.

President Joe Biden on Wednesday said in a statement that while a “headline inflation reading is unacceptably high, it is also out-of-date.” “Today’s data does not reflect the full impact of nearly 30 days of decreases in gas prices, that have reduced the price at the pump by about 40 cents since mid-June,” Biden said.

The International Monetary Fund on Tuesday warned that a surge in inflation poses “systemic risks” to the U.S. economy, a concern not lost on the Federal Reserve as it seeks to damp rising prices by sharply raising borrowing costs. The Fed’s tighter policy trajectory has removed liquidity from the market and helped pressure equity valuations.

Meanwhile, the U.S. corporate earnings season kicks into gear on Thursday, and investors will be watching company’s results for the second quarter, and most importantly, outlook for the rest of the year. “Based on these continued high prices in energy, the supply chain bottlenecks and corporate earnings are something that investors are going to be hyper focused on,” Bassuk said.

See: Wall Street profit expectations for megabanks have cooled ahead of earnings amid a deep freeze in stocks

Investors should continue to consider inflation sensitive investments that can help protect against the the impact of inflation, noted Bassuk. At the same time, “we think that high volatility is going to continue to characterize July markets,” Bassuk said. Thus investors should also consider alternative investments that are designed to cushion portfolios, according to Bassuk.

Companies in focus
  • Shares of Delta Air Lines Inc.
     dropped 7.2% Wednesday, after the air carrier reported second-quarter profit that fell well short of expectations but revenue that rose above pre-pandemic levels to beat forecasts. Net income of $735 million, or $1.15 a share, was down from $1.44 billion, or $2.21 a share, in the same period in 2019. 

  • Shares of IronSource Ltd.
     jumped 50% Wednesday after the business app company agreed to be acquired by Unity Software Inc. in an all-stock deal valued at $4.4 billion. Unity stock is down about 3.8%.

  • Polestar Automotive Holding UK PLC
    shares went up 3.9% after the Swedish electric car company backed its full-year guidance for deliveries of 50,000 cars, as the company offered an update on its year-to-date performance.

Other markets
  • Bourses across Europe mostly followed Wall Street’s overnight retreat, leaving the Stoxx 600
    off 1.2%.

  • The U.S. 10-year Treasury yield
    went down 4 basis points to 2.936%.

  • The ICE Dollar Index
    was down 0.4%.

  • WTI crude
    added 1.4% to $97.20 a barrel having lost 8.5% over the previous two sessions on fears slowing economic growth would hit demand.

  • Gold
    went up 0.7% at $1,737 an ounce and Bitcoin
    was lower at around $19,460.