Inflation jitters prompt selling on Wall Street
Heightened fears of inflation sent US stocks sliding for a second session in a row today as a key price index climbed to an 11-year high and an improving manufacturing sector raised the likelihood of another interest rate hike by the Federal Reserve.
Tech shares and small-caps were hardest hit.
While inflation-adjusted consumer spending rose 0.2% in June, the Commerce Department also reported that consumer prices are up 2.4% year-on-year, the highest rate of inflation since April 1995.
A big increase in the Institute for Supply Management’s manufacturing index deepened investors’ interest rate worries, as a strong economy would make it easier for the Fed to raise rates without cutting off growth.
The index rose to 54.7 in July, far better than the 53 reading economists had expected.
The Fed meets next Tuesday to gauge whether more interest rate hikes are needed to clamp down on inflation.
The Commerce and ISM reports could push policy makers toward another quarter percentage point increase, which would put the benchmark rate at 5.5%. That would make capital more expensive for corporations, and hurt corporate earnings and share prices.
“The market is trying to read every tea leaf to gauge where the Fed is going to go, and we have a lot of data out this week,” said Bryan Piskorowski, market analyst at Wachovia Securities. “You’re going to see these kind of movements, up and down, before you get to the Fed meeting.”
The Nasdaq composite index dropped 29.48, or 1.41%, to 2,061.99 as investors abandoned tech shares and small-cap issues, perceived to be riskier in a rising rate environment.
Other stock indexes also fell. The Dow Jones industrial average fell 59.95, or 0.54%, to 11,125.73, and the Standard & Poor’s 500 index lost 5.74, or 0.45%, to close at 1,270.92.
