Stocks dip after three-decade high in inflation, but losses were limited

Stocks dipped Wednesday after the latest consumer price reading showing the biggest jump in more than 30 years, but losses were muted as investors shrugged off inflation worries.

After opening down, shares eased off their lows. Technology shares remained weak, weighing down the market.

The Dow Jones Industrial Average shed about 55 points. The S&P 500 ticked down 0.2%. The tech-heavy Nasdaq Composite dipped 0.6%.

The consumer price index jumped 6.2% from a year ago, well above the 5.9% estimate from economists polled by Dow Jones and the largest annual increase since 1990. On a monthly basis, the CPI increased 0.9% against the 0.6% estimate. The CPI is a basket of products ranging from gasoline and health care to groceries and rents.

“Wednesday’s Consumer Price Index showed another month of inflation data well above the Federal Reserve’s inflation target, primarily due to continued supply chain issues and labor shortages. If inflation doesn’t subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” Nancy Davis, founder of Quadratic Capital Management, said.

Following the CPI data, traders moved up their expectations for when the first Fed rate hike would occur. The Fed funds futures market now sees greater odds of the central bank’s first full rate hike coming in July 2022.

The 10-year Treasury yield climbed after the CPI report. Rising rates discount the value of future earnings and therefore can hit growth stocks like technology names particularly hard.

Advanced Micro Devices pulled back more than 4%, Nvidia retreated more than 1% and Google-parent Alphabet dipped more than 1%.

Tesla, the leader of the bull market whose shares have come under pressure recently, added more than 3% to cut losses for the week to 13%. The stock was the top gainers on the S&P 500 on Wednesday. Electric vehicle makers are in focus Wednesday with Amazon-backed EV startup Rivian set to go public.

Meanwhile, investors sought out inflation hedges after the hot CPI print. Gold and bitcoin rose as investors looked for assets that could hold up better than stocks or bonds as prices rise.

On Tuesday morning, the Labor Department reported a 0.6% increase in the October producer price index, which was in line with the Dow Jones consensus estimate. Wholesale prices jumped 8.6% in October from a year ago, however, the hottest annual pace on record in almost 11 years.

Earnings season continues to be strong, with most of the S&P 500 companies who have already reported beating estimates.

Disney, Affirm, Bumble and The Honest Company are all scheduled to report earnings Wednesday after the bell.