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Stocks plunge on 41-year inflation high, Treasury yield surges amid 14-year high

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Yahoo Finance's Brian Cheung and Jared Blikre join the Live show to break down the market sell-off resulting from today's CPI data, the impact of inflation on energy commodities, and the bond market.

Video Transcript

RACHELLE AKUFFO: Dave, let's get you a quick market check as we're just an hour away from the closing bell. As you mentioned there, all three major indices taking a hit today on that CPI data. The Dow down 1.85. They're losing about 600 points. The S&P 500 losing more than 2%. And the tech heavy NASDAQ-- the biggest loser on the day so far, losing 2.7% there-- a tough 320 points in the red.

Well, let's take a deeper look behind that headline 8.6% CPI number to see which sectors are being hit harder than others. Here's Yahoo! Finance's Brian Cheung with a breakdown for us. Brian.

BRIAN CHEUNG: Thanks, Rachelle. Well, we got the data this morning from the Bureau of Labor statistics showing that inflation in America rose by 8.6% in the month of May. On a year-over-year basis, you could see that is a high level. And in fact, it's the highest that we've seen since March of 1981. Even when you strip out those more volatile components like food and energy, you still get a very elevated level of inflation of 6.0% in the month of May.

But I want to show you the components that were really driving a lot of these gains, if my Vanna White over--

JARED BLIKRE: [LAUGHS]

BRIAN CHEUNG: --on my left.

JARED BLIKRE: Thank you, Brian.

BRIAN CHEUNG: You did a great job just now. We're looking at energy commodities as part of the consumer price index. So you can see-- these are percentage changes from a year ago. You are not hallucinating. These are double-digit numbers that we're seeing over here. 50% increases, year over year, in fuel oil, in gasoline, in other types of measurable types of energy-- this obviously attributable to a number of factors, in addition to the lack of demand from the shutdown in China. There's also the war going on in Ukraine that has led to the elevated levels, not only in the energy commodities but in every other broad case-- broad-based category that we've seen in that CPI as well. No letting up-- something the Federal Reserve, I'm sure, is very nervous about, guys.

JARED BLIKRE: Yeah, I got to tell you, Brian. I want to look at the bond market here. We were looking at the 10-year just a few minutes ago. We are now tying this high here that we had in May-- 3.16%. I think the high was 3.18%. But this is another huge surge up. That's the 10-year.

Let's take a look at the five-year because that's up even more. That's a 19-basis point move that we're looking at, 3.25%. So the belly of the curve, which is the two to five year-- that's really exploding right now, too, Brian.

BRIAN CHEUNG: Yeah, it's just straight inversion that you're looking at, at least on those measures. But of course, a read on these yields-- just, that simply, the Fed is going to have to maybe raise more aggressively than perhaps thought before. This report-- don't want to read too much into it as the Fed's still expected to make a 50-basis point move next week. But again, you do see bond yields moving by about, what? 10 basis points-- well, at least on the five-year-- 20 basis points in a single day. Casts a little bit of doubt on how markets are reading the Fed reaction.

JARED BLIKRE: It really is huge, Brian. And this is a five-year chart of the five-year T-note yield. Let me just put some lines on here so we can see it a little bit better. We have now exceeded the high that we had just before the pandemic-- well, I guess a year before the pandemic.

You have to go back to 2008. You have to go all the way back to around the general-- the global financial crisis to find something of this magnitude, and it's a huge, steep riser. You can see the angle of acceleration. And this is just giving stocks a lot to deal with.

Now, here's the S&P 500. I want to put our-- a two-month candlestick chart up so we can see the price action. Now, we noted-- I noted yesterday that we had broken down by 3:00 PM. We saw that big decline yesterday. We gapped down. That's that space in here. That's the gap. And now we are off the lows here.

But you've got to imagine, next week could be a big week for stocks because we're probably heading for these lows right now-- maybe lower to test them. And I'll tell you another thing-- next week is a huge volume week for the New York Stock Exchange and the NASDAQ. It's the S&P fund rebalance. So all of these indices are going to rebalance, and I think there's going to be some major market moves into that volume next week, guys.

- Well, Jared, just historically speaking, when we do see the rebalancing, I guess, what could that potentially mean when there is so much uncertainty out there in the markets right now-- lots of worry about inflation, Fed policy in focus? What could that potentially look like?

JARED BLIKRE: Well, really, what it is-- it's an opportunity for large traders to be able to get in or out of the market to reposition themselves, if, in fact, they want to do that. And we've seen some huge portfolio shifts this year. You take a look at the value trade, which has outperformed the growth trade, and the growth stocks have really lagged.

So I think it's just going to be an opportunity for more-- we don't have a lot of volume in the market. We don't have a lot of liquidity in the market right now. So anybody who wants to get things done in the summer-- going to have to do it next week or wait for the Russell rebalance in a couple of weeks.

- All right, Jared Blikre, Brian Cheung, thank you both. Appreciate it much. Have a great weekend.