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US STOCKS-Wall Street closes sharply lower as inflation fears heat up

·3 min read
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(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window.) (Updates to market close) 

  By Stephen Culp 

  NEW YORK, May 12 (Reuters) - Wall Street closed lower on Wednesday with the S&P suffering its biggest one-day percentage drop since February, as inflation data fueled concerns over whether interest rate hikes from the Fed could happen sooner than anticipated. 

  All three major U.S. stock indexes ended the session deep in negative territory in the wake of the Labor Department's April consumer prices report, which showed the biggest rise in nearly 12 years. 

  The report, which measures the prices U.S. consumers pay for a basket of goods, was hotly anticipated by market participants who have grown increasingly worried over whether current price jumps will defy the U.S. Federal Reserve's reassurances by morphing into long-term inflation. 

  But pent-up demand from consumers flush with stimulus and savings is colliding with a supply drought, sending commodity prices spiking, while a labor shortage drives wages higher. 

  "The topic on everyone's mind is obviously inflation," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "It's something the (Fed) has been looking for and they're finally getting their wish." 

  "The question is how long will its fires run hot before starting to simmer?" 

  That concern is shared by Stuart Cole, head macro economist at Equiti Capital in London. 

  "Going forward, the big question is just how long can the Fed maintain its dovish stance in opposition to the markets," Cole said. "Particularly if companies begin raising wages to encourage unemployed labor back into the workforce, in turn driving a large hole in the Fed’s transitory inflation argument." 

  Core consumer prices (CPI), which exclude volatile food and energy items, grew at 3% year-on-year, shooting above the central bank's average annual 2% inflation growth target. 

  (Graphic on inflation) https://tmsnrt.rs/3we4MO7 

  Unofficially, the Dow Jones Industrial Average fell 682.09 points, or 1.99%, to 33,587.07, the S&P 500 lost 89.2 points, or 2.15%, to 4,062.9 and the Nasdaq Composite dropped 357.75 points, or 2.67%, to 13,031.68. 

  Market-leading mega-caps, including Amazon.com Inc, Apple Inc, Alphabet Inc, Microsoft Corp and Tesla Inc, weighed heavily as investors shied away from what many feel are inflated valuations. 

  "The CPI number being stronger than expected has led to further weakness in tech stocks," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. "Tech investors are concerned that higher rates are going to lead to multiple compression and less attractive valuations for tech names in a higher rate environment." 

  Bumble Inc slipped ahead of the online dating platform's first-quarter results expected after the closing bell. 

  First-quarter earnings season is on the wane, with 456 constituents of the S&P 500 having reported. Of those, 86.8% have beaten consensus estimates, according to Refinitiv IBES. 

  (Reporting by Stephen Culp; Additional reporting by Sinead Carew in New York, Medha Singh and Sruthi Shankar in Bengaluru and Joice Alves in London; Editing by Lisa Shumaker)