Dow Falls as Inflation Worries Weigh on Markets

Stocks have come under pressure due to concerns about the Fed’s pullback of easy monetary policies as it combats the recent bout of high inflation. Consumer prices rose in April at a slower pace than the previous month, but still faster than economists had expected, data released Wednesday showed.

That fueled more worries that the central bank will raise interest rates at an aggressive pace and crush economic growth, weighing on markets that had grown accustomed to loose monetary policy. Tech stock particularly flourished in the ultra-low interest-rate era and have tumbled sharply this year, with the Nasdaq Composite trading at its lowest level since November 2020.

“They [tech investors] found themselves at the most vulnerable time, the farthest out on the cliff, so now they’re walking back from the cliff and trying to get on more solid ground, and they’re changing their risk profiles,” said

Dan Genter,

chief executive and chief investment officer of Genter Capital Management.

Mr. Genter recommends investors to take advantage of the recent declines in the market, which have made equities more affordable. His firm isn’t worried about a recession but is still holding dividend-paying stocks out of caution.

The yield on the benchmark 10-year Treasury note declined to 2.815%, edging down for a fourth consecutive trading session. Bond yields and prices move in opposite directions.

The recent declines in Treasury yields signal that the relationship between bonds and stocks could be improving. Earlier in the year, stocks and bonds fell in tandem at a pace not seen in decades.

“It’s possible the correlation between bonds and equities from here on goes back to being negative and that’s one of the elements needed to stabilize the markets,” said

Olivier Sarfati,

head of equities at GenTrust.

The producer-price index, another inflation metric, rose by an annual rate of 11% in April. That marked a decline from the previous month, but was still ahead of the predictions of economists. Weekly jobless claims came in at 203,000, nearly unchanged from the previous week.

“Markets, on the margin, have shifted their probability toward a hard landing and toward further tightening from the Fed,” said

Karim Chedid,

an investment strategist at BlackRock. The decline in longer-dated bond yields suggests that growth expectations have fallen, he said.  

The dollar strengthened, with the WSJ Dollar Index rising 0.5%, its highest level since March 2020. The index measures the greenback against a basket of other currencies. 

Cryptocurrencies continued to be volatile, with bitcoin closing up $257.70, or 0.9%, at $28,572.24 on Thursday. It has lost about 60% of its value since its peak last November. Ether declined 5.2% from its 5. p.m. ET Wednesday level to trade around $1,925.01.

Coinbase

added $4.78, or 8.9%, to $58.50, after losing more than a quarter of its value on Wednesday. 

“As inflation has been high, the Fed has been getting more restrictive on monetary policy, so it makes sense conceptually that you would see multiple contractions, and obviously those names with the biggest multiples have felt the biggest pressure,” said Bill McMahon, chief investment officer of Active Equity Strategies at Schwab Asset Management. Mr. McMahon recommends investors seek safety in defensive sectors of the market.

In corporate news,

Beyond Meat

edged down $1.09, or 4.2%, to $25.08 after the meat-alternative company reported a wider-than-expected loss in the latest quarter due to higher spending.

Shares of

WeWork

rose 53 cents, or 10%, to $5.63 after reporting a narrower loss and raising its guidance.

Walt Disney

declined 90 cents, or 0.9%, to $104.31 after the company reported higher operating losses and said it may not maintain its current growth rate in streaming subscribers.

Meme stocks climbed.

GameStop

rose $8.24, or 10%, to $89.57.

AMC Entertainment

added 83 cents, or 8%, to $11.20.

Bed Bath & Beyond

gained 18 cents, or 2%, to $9.40.

Meanwhile, Saudi Aramco, the state-owned oil company, surpassed Apple as the largest company in the world by market value, according to Dow Jones Market Data.

Apple’s

stock fell $3.94, or 2.7%, to $142.56.

Oil prices fell after U.S. crude inventories rose more than expected, then recovered a bit. Global benchmark Brent crude fell 6 cents a barrel, or less than 0.1%, to $107.45. Prices were also weighed down by slow progress on European Union negotiations to potentially ban Russian crude imports, according to analysts at ANZ.

Overseas, the pan-continental Stoxx Europe 600 fell 0.7%.  In Asia, most major benchmarks declined. Hong Kong’s Hang Seng Index dropped 2.2%, and Japan’s Nikkei 225 fell 1.8%. 

Write to Anna Hirtenstein at [email protected]

Corrections & Amplifications
Walt Disney shares ended 90 cents lower on Thursday. An earlier version of this article incorrectly said they fell 9 cents. (Corrected on May 12)