Stocks plunge as inflation rises and consumer spending stagnates

Stocks fell Thursday on more alarming inflation data, and the S&P 500 closed its worst first half since 1970.

The Dow Jones Industrial Average fell 253.88 points, or 0.8%, while the tech-heavy Nasdaq fell 149.15 points, or 1.3%. The broad-based S&P 500 lost 33.45 points, or 0.9%.

The S&P 500 slipped into bearish territory at the start of the month – defined as a 20% decline from a recent high. The Nasdaq posted its largest first-half percentage decline on record.

Another decades-high inflation and signs of a slowdown in consumer spending rattled investors, even as Federal Reserve Chairman Jerome Powell admitted the risk of recession was growing.

The personal consumer expenditure price index, the Fed’s preferred indicator for inflation, rose 6.3% in May, according to Commerce Department data released Thursday. The reading showed inflation remains a lingering threat to the economy, although it is showing signs of stabilizing after a months-long spurt.

Jerome Powell warned that the Fed had no choice but to raise rates sharply.
Jerome Powell warned that the Fed had no choice but to raise rates sharply.
PA

“A lot of investors were expecting the inflation data to really start to go down. But what we’re seeing is that it’s a lot harder and the inflation data is staying high for longer. and probably haven’t peaked,” Sam Stovall, chief investment strategist at CFRA, told Reuters.

Consumer spending, a key part of U.S. economic activity, rose just 0.2% in May, down from a 0.6% increase the previous month. The increase was lower than analysts’ expectations and the smallest gain so far this year – a worrying sign as fears grow that the Fed could trigger a recession with its steep interest rate hikes.

Inflation-adjusted spending fell 0.4% from April.

“The rising cost of living absorbed all of the increase in purchasing power from job creation and rising wages in May,” said Bill Adams, chief economist at Comerica Bank. “Americans are running faster just to stay level.”

Stocks fell a day after Powell warned the Fed had little chance but to act aggressively with rate hikes as it works to keep inflation from rising. rooted throughout the economy.

“There’s a clock ticking here,” Powell said at the European Central Bank’s economic policy conference in Portugal. “The risk is that due to the multiplicity of shocks, you start to move to a regime of higher inflation. Our job is literally to prevent that from happening, and we will prevent it from happening.

The Fed's preferred inflation gauge rose 6.3% in May.
The Fed’s preferred inflation gauge rose 6.3% in May.
Bloomberg via Getty Images

Powell noted that there was “certainly” a “risk” that the Fed’s actions could cause an economic slowdown.

Cryptocurrency prices continued their trend of selling in tandem with stocks. Bitcoin briefly dipped below $19,000 as investors reacted to the looming economic uncertainty and concerns about a brewing liquidity crisis among major cryptocurrency companies.

The national average gasoline price hovered around $4.85 a gallon on Thursday, falling below record lows ahead of the busy July 4 travel weekend. Oil prices also fell, with the benchmark West Texas Intermediate oil index falling 3.7% to $105.76 a barrel.

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