Dow plummets 682 points on fears overheating inflation will stifle the economic recovery

NYSE Trader
Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 5, 2020.

US stocks tumbled into the close with the Dow dropping nearly 700 points as investors feared overheating inflation will stifle the nation’s economic recovery. Key inflation data came in significantly higher than expected Wednesday morning. The consumer price index increased 4.2% year over year in April and 0.8% from the prior month. Economists were expecting a 3.6% year over year gain and 0.2% gain from March figures.

Core inflation – which leaves out volatile energy and food prices – rose 0.9%. That’s the largest monthly increase for the core index since 1982.

The higher-than-expected figure stoked further concerns that the Federal Reserve is misreading the inflation story. The US central bank has signaled that inflationary pressures will only be transitory.

“The fact is that when we factor in all the monetary and fiscal stimulus that’s been delivered (or shortly will be), the Covid crisis seems likely to be a net inflationary event, at least in the near term,” said BlackRock’s Rick Rieder.

The chief investment officer of global fixed income and head of the BlackRock global allocation investment team added: “The risk of overheating in multiple places across the financial and real asset arenas is becoming more and more of a realistic challenge for future policy, as some have suggested, and without an evolution of what heretofore has been policy reacting to emergency economic conditions, the risk from this will only grow.”

Here’s where US indexes stood at the 4:00 p.m. ET close on Wednesday:

While there is likely more downside ahead for the stock market as it looks to find support near key technical levels, a bullish backdrop remains for equities, according to Bank of America. The 3% sell-off in the S&P 500 over the past week represents a rotational move into cyclical stocks and out of growth stocks rather than a top formation, the bank said in a Tuesday note.

Fundstrat’s Tom Lee is also bullish. In a Wednesday note he said the recent movements of two market fear signals are setting the stock market up for massive gains ahead.

Ether breached a valuation of $500 billion for the first time on Wednesday as the rally for the second-largest cryptocurrency continues. Ethereum’s digital token hit $4,357 at around 6 a.m. ET, according to data from CoinMarketCap – a 53% jump in just 12 days since the beginning of the month.

West Texas Intermediate crude rose as much as 2%, to $66.63 per barrel. Brent crude, oil’s international benchmark, jumped 1.9%, to $69.90 per barrel, at intraday highs.

Gold fell 0.9% to $1,819 per ounce.