By Yasin Ebrahim
Investing.com – The S&P 500 fell Wednesday as the wreck in tech intensified on concerns red-hot inflation is here to stay after jumping by the most since 2008, driven by rising auto prices and airfare.
The Dow Jones Industrial Average fell 1.37%, or 468 points, the S&P 500 fell 1.67%, and Nasdaq Composite slipped 2.2%
The Labor Department said Wednesday its consumer price index rose 0.8% in April, and 4.2% year-on-year, the fastest pace since 2008. Excluding food and energy, core CPI increased 0.9% in April.
"Nearly half of that jump [in the core] was due to sharp increases in used car prices and airfare (both +10% mom), as demand for domestic travel rebounded with further easing in restrictions," RBC said in a note.
The latest update on inflation expectations suggest this is unlikely to be a one and done story.
The 10-year inflation "breakevens” -- a key measure of inflation expectations over the next decade – jumped 2.57%, the highest level since September 2012.
The Federal Reserve has previously reiterated that the factors boosting inflation will eventually run out of steam.
"While this was a massive surprise, the Fed will likely continue to make the case that a lot of these pressures are transitory and will fade later this year as consumer demand for goods subsides and the supply side catches up," Jefferies (NYSE:JEF) said.
Investors continued to shun growth stocks like technology, which have higher valuations that are less attractive in an inflationary environment, where money today is worth more than money in the future.
Google-parent Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) Amazon.com (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) fell more than 2%.
Energy sidestepped the market selloff thanks to rising oil prices as bullish sentiment on the recovery in crude demand ahead of the summer driving season offset data showing a weekly build in U.S. crude supplies.
Crude oil supplies fell 427,000 barrels last week, compared with analysts' expectations for a draw of 2.817 million barrels.
Downside in financials was limited by rising banks stocks as Treasury bond yields were pushed higher by the strong inflation report.
JPMorgan (NYSE:JPM) was flat, while Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) were up about 1%.
The U.S. 10-year Treasury yield rose to 1.675%, a two-week high.
Higher interest rates are seen as boon for banks, boosting net interest margin – the difference between the interest income generated by banks and the amount of interest paid out to their lenders.