Speculation that inflation may have peaked earlier this year came to an abrupt end with the release this morning of the latest Consumer Price Index (CPI) from the Labor Department. And what the data showed was that prices were still up last month.
Specifically, the CPI jumped 8.6% year-on-year in May, the fastest pace since December 1981. The sharp rise in consumer inflation was broad-based, but annual increases were particularly surprising for both gasoline prices (+50.3%) and groceries. (+11.9%). On a month-to-month basis, the consumer price index rose 1%, compared to prices rising 0.3% in April. Both figures were higher than economists expected.
The University of Michigan’s preliminary consumer sentiment index for June was also released this morning, which came in at 50.2, down 14.2% from May, the lowest reading reported. by this decades-old indicator. According to the report, 46% of survey respondents pointed to inflation for their negative outlook on the economy, up from 38% from last month.
“The collapse in sentiment means that consumers are increasingly worried about future economic conditions,” said Jeffrey Roach, chief economist at independent brokerage LPL Financial. “We need to listen to what consumers are saying, but more importantly, we need to monitor what consumers are doing. We expect consumer spending to slow as inflation and uncertainty weigh heavily on sentiment.”
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The reports were greeted by strong selling on Wall Street. All 11 sectors finished in the red, with consumer discretionary (-4.0%) and Technology (-3.8%) suffering the largest declines.
With regard to the main indices, the Nasdaq Compound slipped 3.5% to 11,340, the S&P 500 Index lost 2.9% to 3,900 and the Dow Jones Industrial Average slipped 2.7% to end at 31,392.
Other news on the stock market today:
- Small cap Russell 2000 fell 2.7% to 1,800.
- U.S. Crude Futures lost 0.7% to settle at $120.67 a barrel.
- Gold Futures Contracts jumped 1.2% to end at $1,875.50 an ounce.
- Bitcoin fell 3.4% to $28,966.18. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
- netflix (NFLX, -5.1%) and Roblox (RBLX, -9.0%) posted steep losses today after Goldman Sachs downgraded the stock to Sell. “We are downgrading NFLX to Sell as we have concerns about the impact of a consumer slump as well as increased levels of competition on demand trends (both in the form of raw adds and churn), margin expansion and content spend levels and view NFLX as a telling story with a light catalyst path in the next 6-12 months,” the analysts wrote in a note. And while they still view RBLX as the name best positioned for long-term growth opportunities in the gaming/interactive space, “we have growing concerns about the post-pandemic environment and expect continued slowing growth, comps difficulties and the normalization of margins in the short term.”
- DocuSign (DOCU) fell 24.5% after the e-signature company reported earnings. In the first quarter, DOCU reported adjusted earnings per share of 38 cents on revenue of $588.7 million. Analysts on average had expected earnings of 38 cents per share on $581.8 million in revenue. The company also lowered its full-year billing growth estimate to 7% to 8% from earlier guidance of 15% mid-term growth. “DocuSign indexed the guide to a) macro headwinds (customers cautious about expanding volumes across regions), b) sales execution (high sales rep turnover) c) customers digesting still excess capacity (pandemic distortions continue to play out in equities) and d) lower volumes of rate-sensitive loan/mortgage e-signatures, impacting financial/real estate verticals,” said Karl Keirstead, analyst at UBS Global Research “We stay on the sidelines with a neutral note.”
The best stocks for skyrocketing inflation
We’ll get a glimpse of how the Federal Reserve reacts next week to today’s searing inflation update, with the central bank due to unveil its latest policy decision on Wednesday afternoon.
“From the Fed’s perspective, the chase continues and more aggressive Fed action will likely be required to catch runaway inflation,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
“Whether that translates into more aggressive hikes this summer, or a 50 basis point pursuit [a basis point is one-one hundredth of a percentage point] hikes this fall is the option for the Fed, but the general reality for the Fed is that inflation is not under control, and they have their work cut out for them in the months ahead,” Ripley added.
We’ve mentioned several times in this space how investors can hedge their portfolios against inflation. For example, gaining exposure to companies with price-setting power or grabbing Wall Street’s top dividend-paying stocks are two ways to help mitigate the effects of runaway inflation on their portfolio.
Investors can also explore sectors that are generally considered more “inflation resistant” than others, namely healthcare, consumer staples, utilities and real estate. Here, we’ve selected some of the best stocks from each of these sectors to create a mini-portfolio that can withstand higher prices. Looked.