Wall Street Opens Lower, Trims Losses as CPI Surge Intensifies Rate Fears

By Geoffrey Smith 

Investing.com -- U.S. stock markets opened sharply lower on Thursday after a new 40-year record high for U.S. inflation stoked fears that the Federal Reserve will have to raise interest rates repeatedly this year. 

By 9:35 AM ET (1435 GMT), the Dow Jones Industrial Average was down 281 points, or 0.8% at 35,487 points. The S&P 500 was down 1.1% and the Nasdaq Composite, which has traded more sensitively to interest rate expectations in recent weeks, was down 1.5%.

Earlier, official statistics showed the consumer price index rose 0.6% on the month and 7.5% on the year, its highest since 1982. The rise in prices was broad-based, with the majority of sub-categories for various goods and services showing an inflation rate of over 5%.

"It isn't just the rate that should be worrying the Federal Reserve, but also the breadth of corporate pricing power," said James Knightley, chief international economist with ING, in a note to clients.

The labor market, too, showed further signs of having ridden out disruptions from the wave of Omicron-variant Covid-19 quickly, with initial jobless claims falling by more than expected last week to 223,000.

However, the market trimmed its losses later, on the perception that the numbers, while bad, won't be bad enough to lead the Fed to raise the target rate for Fed Funds by 50 basis points next month, as some have suggested. Cleveland Fed President Loretta Mester - one of the voting members of the Federal Open Markets Committee this year -  had said on Wednesday that she didn't see a "compelling reason" for such a step.

The figures were a disappointment to the bond market too, pushing yields (which move inversely to prices) at the long end of the curve up by around 5-6 basis points. The benchmark 10-Year Treasury note yield, which had fallen on Wednesday after a well-received auction, rose to 2.00% for the first time since August 2019.

The selling wasn't so indiscriminate as to stand in the way of those companies who reported strong earnings overnight or before the opening, however. Twilio (NYSE:TWLO) stock rose 9.1% and Datadog (NASDAQ:DDOG) stock rose by 12.2% after well-received updates, while Walt Disney (NYSE:DIS) stock also rose by  5.1% to its highest in a month after the entertainment giant said it gained 11.8 million new subscribers for its Disney+ service in the holiday quarter. That came at a cost, however, with the unit that houses the streaming service losing nearly $600 million in the quarter. The losses were bankrolled largely by the company's theme park division, which was able to operate almost completely without Covid restrictions in the quarter.

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Uber stock was another gainer, after its latest quarterly numbers showed sustained strong revenue growth in its food delivery business despite the reopening of restaurants, while its passenger numbers also increased. The company's forecasts for the current quarter were below consensus forecasts, however. Uber (NYSE:UBER) stock rose 5.1% to a one-month high.