Stocks Drop After Largest Jump in CPI in 30 Years…..

U.S. equities finished lower, as investors processed a consumer inflation report that not only was hotter than forecasts, but the increase from a year ago was the fastest pace in over 30 years. Meanwhile, MBA mortgage applications increased, as both the purchase and refinance indexes rose, weekly initial jobless claims were above forecasts, and wholesale inventories were revised higher. On the equity front, Wendy’s reported earnings that bested the Street’s expectations, while Coinbase missed revenue and earnings targets. Treasuries were lower, lifting yields, and the U.S. dollar traded solidly to the upside, while crude oil prices fell following a report that showed the highest stockpiles since August, and gold rallied. Europe finished mostly higher as the markets digested inflation data in the region, as well as the U.S. report, while markets in Asia finished mixed as Chinese producer prices increased more than expected.

The Dow Jones Industrial Average fell 240 points (0.7%) to 36,080, the S&P 500 Index declined 39 points (0.8%) to 4,647, and the Nasdaq Composite lost 264 points (1.7%) to 15,623. In moderate volume, 4.4 billion shares of NYSE-listed stocks were traded and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $2.81 to $81.34 per barrel. Elsewhere, the gold spot price advanced $19.90 to $1,850.70 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—jumped 1.0% to 94.87.

Inflation higher than expected, jobless claims and mortgage applications increase

The MBA Mortgage Application Index rose 5.5% last week, following the prior week’s decrease of 3.3%. The increase came as a 7.4% rise for the Refinance Index was met with a 2.7% advance for the Purchase Index. The average 30-year mortgage rate fell 8 basis points (bps) to 3.16%.

Weekly initial jobless claims came in at a level of 267,000 for the week ended November 6, versus the Bloomberg consensus estimate of 260,000 and compared to the prior week’s upwardly-revised 271,000 level. The four-week moving average fell by 7,250 to 278,000, and continuing claims for the week ended October 30 increased by 59,000 to 2,160,000, above estimates of 2,050,000. The four-week moving average of continuing claims decreased by 110,750 to 2,245,000.

The Consumer Price Index (CPI) rose 0.9% month-over-month (m/m) in October, above the Bloomberg consensus estimate of a 0.6% increase. The core rate, which strips out food and energy, increased 0.6% m/m, above the 0.4% expected, and following September’s unadjusted 0.2% rise. Y/Y, prices were 6.2% higher for the headline rate, north of forecasted 5.9% rise and the quickest acceleration in 30 years. The core rate was up 4.6% y/y, above the projected 4.3% gain and August’s unrevised 4.0% increase.

The Bureau of Labor Statistics (BLS) said that the monthly all-items increase was broad based, and the components for energy, shelter, food, used cars and trucks, and new vehicles were among the larger contributors. Energy rose 30.0% over the last 12 months, and food increased 5.3%.

The final read on September wholesale inventories was revised to an increase of 1.4% m/m from the previously-reported 1.1% rise. Sales gained 1.1% m/m, compared to forecasts of a 1.0% advance, and following August’s upwardly-adjusted 0.9% decrease.

Treasuries were lower, as the yield on the 2-year note was up 10 basis points (bps) at 0.50%, the yield on the 10-year note rose 13 bps to 1.56%, and the 30-year bond rate was 11 bps higher at 1.92%.

©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.