U.S. stocks dropped in early trading Thursday as investors digested red-hot inflation data that showed price levels remained elevated in April, signaling more aggressive inflation-fighting efforts by the Federal Reserve may be underway.
The S&P 500 tumbled 1% after the index settled at 3,935.18, or its lowest level since March 2021 in the previous session. The S&P 500 is down more than 17% in the first 90 trading days of 2022, marking its second worst start to a year, according to data from Compound Capital Advisors. The Dow Jones Industrial Average shed 250 points, or 0.8%, and the Nasdaq Composite plunged 1.7%.
The moves build on a streak of sharp losses in equity markets and follow April’s Consumer Price Index (CPI) out Wednesday, which showed an inflation rate that held near a 40-year high despite a marginal pullback from the prior month. Furthermore, the so-called core price index, which excludes the volatile food and energy categories, came in higher than economists had anticipated, stoking worries among investors that elevated prices may persist.
April’s snapshot of inflation across the U.S. comes as investors gauge how aggressively the Federal Reserve will intervene to rein in rising price levels via monetary tightening, including increases on interest rates. Uncertainty around the central bank’s next move has spurred turbulence across risk assets, sending all three major indexes to their lowest trading levels year-to-date.
“Inflation appears to be entrenched within many areas of the economy and regardless if we have witnessed inflation peak, a persistently slow grind lower will be more problematic for the Fed to simultaneously cool inflation without tipping the economy into recession,” Charlie Ripley, a senior investment strategist at Allianz Investment Management, said in an emailed note Wednesday.
Cleveland Fed President Loretta Mester told Yahoo Finance on Tuesday that interest rate hikes of 50 basis points were likely in the next two Federal Reserve policy-setting meetings, while leaving an increase of 75 basis points on the table as the central bank ramps up its inflation-mitigation efforts.
“It’s going to be challenging, no doubt, because there are things going on on both the supply side and the demand side,” Mester said. “But the risks to inflation remaining high get even more risky as we keep going because of inflation expectations, so it’s really important we’re committed to doing what we need to do.”
Peter Essele, head of portfolio management, Commonwealth Financial Network, said if inflation levels out in the second half of the year, there will be less pressure on the Fed to combat elevated price levels with aggressive monetary policies, “which leaves open the possibility of a soft landing of the economy as opposed to the crash and burn that markets have been pricing in as of late.”
“The second half of the year could be a strong period for equities and bonds if inflation continues to moderate and the magnitude of interest rate hikes come in under expectations,” Essele said in a note. “Currently, investors are pricing in a doomsday scenario with inflation and are missing the forest for the trees.”
The producer price index for final demand climbed 11% from April of last year and 0.5% on a monthly basis, driven by higher costs for goods, according to Labor Department data released Thursday. That figures also follow notable upward revisions to the March figures.
“Producer price inflation slowed slightly in April but still remains historically high, with nothing to dissuade the Federal Reserve from more rate hikes in the April inflation numbers,” Comerica Bank Chief Economist Bill Adams said in a note. “The Fed will want to see clearer evidence that inflation is cooling and higher interest rates are slowing demand before they start thinking about the endpoint of the current rate hike cycle.”
The so-called core PPI, which excludes the volatile food and energy components, rose 0.4% from a month earlier and was up 8.8% from the same period last year. The measure rose at a softer-than-expected monthly pace but March’s figure was revised up to a 1.2% advance.
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9:07 a.m. ET: New jobless claims unexpectedly rise but remain near 200,000 level
Applications for first-time unemployment filings unexpectedly rose in the latest weekly data but remained near pre-pandemic lows, as a strong labor market and improving levels of unemployment remain a bright spot in the U.S. economy.
The Labor Department’s latest weekly jobless claims report showed 203,000 claims were filed in the week ended May 7, coming in below the 192,000 economists surveyed by Bloomberg had expected.
“It’s probably unrealistic to expect it to fall much below 200,000,” Ted Rossman, senior industry analyst at Bankrate said in a note. “Broadly speaking, the job market is still a source of strength in an economy riddled with worries about inflation, higher interest rates and more.”
Given the surge and then decline in jobless claims, the Labor Department has also now reconfigured the way it adjusts the weekly data to account for seasonal factors. Starting last week, the Labor Department returned to using “multiplicative” seasonal adjustment factors for the data. For much of the pandemic, the department had been using “additive” seasonal adjustments that help smooth out large swings in the weekly numbers.
The 4-week moving average was 192,750, an increase of 4,250 from the previous week’s revised average, according to the Labor Department’s release.
The company is reportedly working with banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. on the move, per Bloomberg, citing people familiar with the matter, who indicated a listing could happen as soon as this year, though the timing may change.
Instacart, which grew sharply during the pandemic as people turned to online grocery shopping, has seen a recent slowdown in growth following its COVID boom as consumers return to in-person supermarket visits.
The company revealed in March that it was cutting its valuation about 40% to $24 billion. Instacart was previously valued at $39 billion in a March 2021 funding round from firms including Andreessen Horowitz, Sequoia Capital and D1 Capital Partners, as well as Fidelity Management & Research Co. and T. Rowe Price Associates Inc, Bloomberg reported.
Smartphone with displayed Instacart logo is seen in this illustration taken March 25, 2022. REUTERS/Dado Ruvic/Illustration
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6:14 p.m. ET Wednesday: Stock futures edge higher following continued losses in equities
Here’s where stock futures were in extended trading ahead of the overnight session Wednesday:
S&P 500 futures (ES=F): +10.75 (+0.27%) to 3,941.00
Gold (GC=F): -$1.90 (-0.10%) to $1,851.80 per ounce
10-year Treasury (^TNX): -7.2 bps to yield 2.9210%
A trader works on the floor of the New York Stock Exchange NYSE in New York, the United States, May 5, 2022. U.S. stocks plunged on Thursday as heavy selling intensified on Wall Street. The Dow Jones Industrial Average tumbled 1063.09 points, or 3.12 percent, to 32,997.97. The S&P 500 fell 153.30 points, or 3.56 percent, to 4,146.87. The Nasdaq Composite Index shed 647.17 points, or 4.99 percent, to 12,317.69. (Photo by Michael Nagle/Xinhua via Getty Images)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.
The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.
Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.
The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.
The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.
The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.
The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.
Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.
In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.
“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.
As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.
Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.
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