Anticipating a general downward trend in accelerating prices, the latest Consumer Price Index (CPI) revealed exactly that. However, the data came in slightly hotter than expected. So we’re addressing the popular query of: “Why are stocks down today?” The benchmark S&P 500 index dipped about half a percent in early afternoon trading. Sentiment turned downward as the Federal Reserve likely sees no reason to curb its interest rate hiking campaign.
Specifically, the U.S. Bureau of Labor Statistics (BLS) reported that the CPI for all urban consumers increased to 6.4% over the last 12 months. Taking out food and energy prices for their month-to-month volatility, the so-called core inflation rate hit 5.6% over the past year. However, according to Reuters, economists anticipated the main CPI to post an increase of 6.2%.
To be sure, the CPI continues to show a decisively downward trend. Back in June 2022, the CPI peaked at 9.1%. Since then, the index has slipped encouragingly. However, the latest above-forecast inflation reading indicates that while inflation may no longer be relentless as it was last year, it remains obstinate. And that has many experts concerned about the Fed’s next action items.
“While there were no major surprises in today’s CPI reading, it is a reminder that while inflation has peaked it could be a while before we see it moderate to normal levels,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment office, told CNBC.
Why Are Stocks Down Today Despite Overall Price Declines?
On the surface level, investors may be justified in asking “so, why are stocks down today?” After all, the main trend of inflation turned negative relative to last year’s peak. However, as the New York Times mentioned, the recent pace of the CPI may have caught some analysts off guard. The news agency stated:
“The price index was up 6.4 percent in January compared with a year earlier. That was a slight slowing from 6.5 percent in December, and down notably from a peak of about 9 percent last summer. But compared with the previous month, prices climbed 0.4 percent after stripping out groceries and fuel — a rapid pace of growth that matched the increase in December.”
Unfortunately, the Times added that “…it could be a long and bumpy road back to the 2 percent annual inflation gains that used to be normal.”
Another factor to consider centers on the worsening wealth gap. Specifically, the share of total net worth held by the 50th to 90th wealth percentiles still sits in a downward trend that extends back to the pre-Great Recession years. Essentially, the middle class may continue to hurt badly as food and energy prices remain incredibly elevated.
For instance, the food subsegment jumped up 10.1% over the past year. For energy, this category posted 8.7% up. Indeed, food prices have outpaced the main CPI since March 2022. And energy prices have outpaced the headline inflation number since February 2021.
Put another way, the Fed may be forced to keep raising rates because no alternatives to the necessities of food and energy exist. Otherwise, the middle class may absorb substantial damage.
Why It Matters
Although the biggest reason why stocks are down today revolves around the CPI, other factors may also spark a worrying rise in prices. Most notably, China’s reopening could spark greater commercial activity, which natively fuels greater resource consumption. Almost certainly, such an outcome will boost energy demand, catalyzing even more inflationary pressures.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
