By Joyce Yu
Philadelphia, PA–Wall Street opened lower Wednesday on better-than-expected inflation data before rebound and drifting slightly higher in the morning session. The U.S. consumer price index increased 0.5% in January, beating expectations for a 0.3 percent%. The core consumer price index grew by 1.8% after animalization, above expectations for 1.7% percent.
History shows Boeing is among the best performing Dow stocks with runaway inflation data, based on a CNBC report. Materials sector, on the other hand, is the worse performing sector. Chemical giant DuPont falls an average 0.32 % one week after an inflation report tops expectations while Procter & Gamble falls an average 0.26%.
Faster inflation means it’s more likely for the Federal Reserve to raise interest rates more quickly this year, a move which will encourage some investors to take money out of stocks and put it into bonds, dampening the sentiment in stocks market.
“This is a strong number,” Luke Bartholomew, a strategist at Aberdeen Standard Investments, told the Financial Times. “There’s a risk that this could pour fuel on the fire of last week’s market sell-off. That boiled down to real sensitivity to the prospect of higher inflation that markets had anticipated. That nervousness is not going away. With unemployment so low, growth going to get big boost from tax cuts and the newly announced spending increases, the stars are aligned for inflation to pick up more from here. So this could set off another round of selling as some investors fret about what it means for US interest rates.”
In the meantime, U.S. retail sales unexpectedly fell 0.3% in January, recording their biggest drop in nearly a year, as households cut back on purchases of motor vehicles and building materials. Economists polled by Reuters had forecast retail sales climbing 0.2% in January.
“You got the worst-case scenario with this economic data,” Art Hogan, chief market strategist at B. Riley FBR, told CNBC. “You got a hotter-than-expected CPI number and weaker retail sales. Unfortunately, CPI gets much more focus than normal because of the wage growth number we saw” in the last jobs report.
After recording its worst weekly loss since January 2016, U.S. stocks have been trying to bounce back this week. But Goldman Sachs CEO Lloyd Blankfein warned investors in an interview with CNN to invest cautiously. “I wouldn’t throw all in,” Blankfein said. “With the Fed raising rates, with the withdrawal of QE, with the budget deficit widening out, I wouldn’t say this is the time I would max out on my risk.”
Referring to the dramatic rate hike by Fed in 1994 due to concerns about runaway inflation, Blankfein said, “I remember 1994.” “That’s possible, too. That would be quite jarring to the economy.”
