Bad Inflation Surprise Sends Stocks Down Sharply

Published Friday, June 10, 2022 at: 8:02 PM EDT

5034 2

The inflation crisis of 2022 grew more fearsome with Friday’s release by the U.S. Bureau of Labor Statistics of a worse-than-expected consumer price index (CPI) report. For the 12 months through May 2022, CPI shot +8.6% higher, the highest rate since the inflation crisis of the late 1970s and early 1980s. 

Higher gas prices are the main factor. Meanwhile, other threats to U.S. economic growth linger, including the war in Ukraine, supply chain bottlenecks, and Covid subvariants. The unusual turbulence shortens runway room for a soft-landing and increases the chance of a recession, but the Federal Reserve still has a chance of convincing consumers that it will end inflation fast.

The Fed hiked rates a half-point on May 4. It’s expected to announce another half-point hike on Wednesday, June 15.  Yet another hike is expected on July 27, and Friday’s worse-than-expected CPI release makes yet another half-point hike on September 21 more likely.

Friday’s bad CPI surprise came after a last week’s positive report on the Fed’s favored benchmark of inflation, the Personal Consumption Expenditure Deflater (PCED) index, registered a decline. That had raised hopes that a peak in inflation had occurred. Instead, the CPI increase in May was as bad as in April, rising by six-tenths of 1%.     

Keeping the latest economic news in perspective, it’s important to remember that last week’s release of the Purchasing Managers Index (PMI) in the service sector, settled at its long-term historic norm. Services account for 89% of U.S. economic activity. In addition, the latest Leading Economic Indicator Index for the U.S. in line with long-term expectations for gross domestic product growth of 2.2%, unemployment remains very low, new-job creation is strong, and consumer balance sheets are strong. Thus, a soft landing could still unfold, or a short, mild recession.

Speculation about the Fed’s next move is a hot topic on cable TV, national newspaper, and social media networks. The Fed could hike rates more than a half-point on Wednesday. Seventy-five basis-point hikes  are extremely rare but could occur on Wednesday. Or the Fed may not wait till Wednesday by raising rates this weekend. Exactly how the Fed will convince the nation that it will end inflation is unknown, but the Fed ultimately has always found a way to kill the scourge, even if it meant a recession.

5034 3

Inflation uncertainty sent the stock market tumbling today by -2.9%.  The Standard & Poor’s 500 stock index closed this Friday at 3,900.86. The index dropped -5.18% from last week. The index is up +54.2% from the March 23, 2020, bear market low and down -20.6% from the January 3rd all-time high. 


Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

2024

    2023

    2022

    2021

    2020

    2019

    2018

    2017

    2016

    2015

    Company Info

    35 Pinelawn Rd., Suite 101E
    Melville, NY 11747
    631.454.2000

    845 Third Avenue
    Suite 1703
    New York, New York 10022
    212.371.3950

    Our Disclosure

    Wealth Advisory solutions provided by subsidiaries of Percheron Asset Management Group, Inc.: Herold Advisors Inc. and Lantern Wealth Advisors, LLC., SEC registered investment advisors. Securities offered through Herold & Lantern Investments Inc., a registered broker dealer, Member FINRA, MSRB, SIPC.

    Bernard Herold & Co., Inc.
    Rule 606(a)1 Reporting Public Disclosure

    Herold & Lantern Investments, Inc. Rule 606

     

    This website uses cookies for navigation, content delivery and other functions. By using our website you agree that we can place cookies on your device. I understand