Wall Street stock markets fell as surveys pointing to rising inflation in the US hit investor confidence, with tech companies and other growth stocks leading the declines.
The blue-chip S&P 500 closed the trading day 0.3 per cent lower, with communication services and information technology clocking some of the sharpest declines. The Nasdaq Composite, stacked with long-duration growth stocks sensitive to higher interest rates, slipped 0.4 per cent, pairing back heavier losses earlier in the day.
The price of gold, which benefits in times of heightened uncertainty, rose $22, to $1,866 an ounce, its highest level since January and close to $200 higher than it cost just two months ago. The yellow metal is also viewed as a hedge against inflation.
Global stocks sustained their worst week since late February last week after data showed US consumer price inflation rose 4.2 per cent in April, year on year, its highest level since 2008.
While sustained inflation erodes the real returns from stocks and bonds, investors are unsure whether April’s rise was the result of one-off effects from industry shutdowns last year caused by coronavirus.
“Markets are climbing a wall of worry,” said Grace Peters, chief investment strategist at JPMorgan Private Bank.
Stock market investors had experienced an “easy ride” in the first stage of economic recovery from the coronavirus pandemic in the US, Peters added.
“Now we have the concept of peak [economic] data coming in,” she said, after US gross domestic product advanced a robust 6.4 per cent on an annualised basis in the first quarter, driving global stock markets to record highs in late April and early May. “Things are getting more volatile.”
In Europe, the Stoxx 600 regional share index closed 0.1 per cent lower. London’s FTSE 100 slipped 0.2 per cent.
Despite the recent pullback in equity markets, global financial conditions remain at levels last seen before the coronavirus crisis rippled across the financial system last March.
One metric compiled by the US Treasury department has barely budged despite the recent volatility and hovers close to minus 4, having peaked at 10 last year.
JPMorgan’s Peters said she expected stock and bond markets to stay “rangebound over the summer” as investors waited on the US Federal Reserve to signal when it would start reducing its $120bn of monthly bond purchases, which have boosted markets through the pandemic.
The yield on the 10-year US Treasury bond, which moves inversely to its price, was up 0.14 percentage points on Monday at 1.64 per cent.
“The Fed is going to find it increasingly difficult to justify its extremely easy monetary policy stance” as inflation expectations increased, said Will Denyer, of research house Gavekal.
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A survey by the University of Michigan last Friday showed consumers’ expectations of price rises over the coming five years were at a decade high of 3.1 per cent. Professional forecasters surveyed by the Philadelphia Federal Reserve also now expect average consumer price inflation of 2.3 per cent, above the central bank’s target, for the next 10 years.
“These forecasts are not going to cause the Fed to panic and start tightening aggressively,” Denyer said. But they were “one more indication that crisis-level monetary policy is no longer warranted”.
In currency markets, the dollar index that measures the greenback against trading partners’ currencies, dropped 0.2 per cent. The euro added 0.1 per cent against the dollar, purchasing $1.2157. Sterling rose 0.3 per cent against the dollar to $1.414*.
*This story has been amended to correct the euro and sterling exchange rates