40-year High Inflation, Record Low Sentiment Sinks Stocks…..

U.S. equities plunged in today’s session, adding to yesterday’s drop, and posting yet another week of solid losses. The tumble in the markets came amid heightened inflation concerns following an unexpected acceleration in domestic consumer price inflation for May. Worries over the persistent rise in prices have weighed on confidence and was a catalyst in today’s record low plunge for the preliminary June University of Michigan Consumer Sentiment Index. Treasuries traded lower in the wake of the data, with yields rising and the curve flattening amid ramped-up expectations that the Fed will be forced to get more aggressive. The U.S. dollar rallied, crude oil prices fell, and gold was sharply higher. In equity news, DocuSign missed earnings estimates and lowered its billings guidance, and Advanced Micro Devices offered a positive long-term outlook, but warned of a down PC market this year. Europe saw widespread losses as the markets grappled with tighter monetary policies on both sides of the pond, and Asia finished mostly lower, but China rebounded.

The Dow Jones Industrial Average tumbled 880 points (2.7%) to 31,393, the S&P 500 Index dropped 117 points (2.9%) to 3,901, and the Nasdaq Composite plunged 414 points (3.5%) to 11,340. In moderate volume, 4.8 billion shares of NYSE-listed stocks were traded, and 5.1 billion shares changed hands on the Nasdaq. WTI crude oil moved $0.84 lower to $120.67 per barrel. Elsewhere, the gold spot price was up $22.40 to $1,875.20 per ounce, and the Dollar Index gained 0.9% to 104.16. Markets were lower for another week, as the DJIA lost 4.9%, the S&P 500 decreased 5.1%, and the Nasdaq Composite fell 5.6%.

Consumer price inflation comes in hotter than expected, June consumer sentiment tumbles…..

The Consumer Price Index (CPI) rose 1.0% month-over-month (m/m) in May, above the Bloomberg consensus estimate calling for a 0.7% gain, and compared to April’s unrevised 0.3% increase. The core rate, which strips out food and energy, increased 0.6% m/m, north of forecasts calling for a 0.5% rise and matching April’s unadjusted increase. Compared to last year, prices were 8.6% higher for the headline rate, above estimates calling for the rate to match the prior month’s unrevised 8.3% rise. The core rate was up 6.0% y/y, north of projections of a 5.9% gain, but down from April’s unrevised 6.2% rise.

Amid the intense inflationary environment, the preliminary University of Michigan Consumer Sentiment Index (chart) for June showed that sentiment fell much more than expected, dropping to 50.2 from May’s final reading of 58.4, and versus estimates calling for a dip to 58.1. The index fell to a record low as the expectations component of the report dropped sharply, as did the current conditions portion, which also posted a record low.

Director of the survey Joanne Hsu said, “Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and that factors they cited are unlikely to abate soon.” She added that, “While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth.” The 1-year inflation expectation ticked higher to 5.4%—the highest since 1981—from 5.3% in May, where it was expected to remain. The 5-10 year inflation outlook moved higher for the first time in five months, rising to 3.3% from 3.0% in the prior month.

Treasuries were lower following the inflation data and amid continued choppy action as markets grappled with the implications on Fed monetary policy, which is tightening amid the backdrop of slowing economic growth.

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