Stocks Sink As U.S. Inflation Worsens

Wall Street's shuddering realization that inflation worsened rather than improved last month sent markets reeling on Friday (Saturday, June 11, 2022, in Manila), Stan Choe and Damian J. Troise reported for the Associated Press (AP).

Photo Insert: Wall Street experienced its worst two-day stretch in nearly two years this week.

The S&P 500 fell 2.9 percent, marking its ninth consecutive losing week, and falling bond prices pushed Treasury yields to their highest levels in years. The Dow Jones Industrial Average dropped 2.7 percent, while the Nasdaq Composite fell 3.5 percent.

Wall Street was hoping that a highly anticipated report would show that the worst inflation in generations slowed slightly last month and had passed its peak. Instead, the US government reported that inflation rose to 8.6 percent in May, up from 8.3 percent the previous month.

The S&P 500 dropped 116.96 points to 3,900.86. When combined with its losses from Thursday, when investors rushed to lock in final trades before the inflation report, it was Wall Street's worst two-day stretch in nearly two years.

The Dow fell 880.00 points to 31,392.79, while the Nasdaq fell 414.20 points to 11,340.02.

Stock prices fluctuate based on two factors: how much cash a company generates and how much an investor is willing to pay for it. The Fed's interest rate moves have a significant impact on the second part, according to Elaine Kurtenbach of the Associated Press (AP).

In order to force down inflation, the Federal Reserve has already begun raising interest rates and making other moves to slow the economy. Wall Street interpreted Friday's reading as the Fed's foot remaining firmly on the brakes for the economy, dashed hopes that it would ease up later this year.

“Inflation is hot, hot, hot,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “Basically, everything was up.”

The Fed is widely expected to raise its key short-term interest rate by half a percentage point at each of its next three meetings, which begin next week. Investors had been debating the third one in September in recent weeks. Only once since 2000 has the Fed raised interest rates by that much, and that was last month.

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