As investors become increasingly concerned about raw material price spikes, shortages, and inflation, US stocks sold off on Tuesday, with the Dow briefly falling more than 600 points.
Prices are increasing everywhere as commodities, shipping costs, and other related categories become more expensive. Shortages and global supply issues have been looming in the background for months, but they are finally weighing on stocks on Tuesday.
“Although we are coming off a record earnings season, continued supply chain and labour shortages are adding to potential inflationary pressures,” said Ryan Detrick, chief market strategist for LPL Financial.
The price increases have an impact on broader measures of inflation, which may force the Federal Reserve to change its monetary policy stance sooner than expected. For the time being, the central bank’s interest rates are extremely low, and it purchases billions of dollars in assets each month. But that will change eventually, and a prolonged rise in inflation could bring about that change.
So far, Fed Chairman Jerome Powell has maintained that it is too early to discuss policy changes because both labour market improvements and higher inflation in the medium term must occur first.
However, the employment situation is slowly but steadily improving. According to data released on Tuesday, the number of job openings in March increased to 8.1 million, the highest number recorded since the government began tracking that metric in December 2000.
As a result, investors are concerned, and tech stocks were hit the hardest by inflation fears during Tuesday’s session. However, by the closing bell, the Nasdaq Composite (COMP) had recovered some of its losses and was down only 0.1 per cent.
The Dow Jones Industrial Average (INDU) fell 1.4 per cent, or 474 points, after falling as much as 667 points earlier in the session. The broader S&P 500 (SPX) fell 0.9 percent.
The stock market’s weakness was not the only source of concern.
“The US dollar is trading defensively, alongside weaker stocks and declining major bond markets as investors appear to be in ‘sell (almost) everything’ mode ahead of tomorrow’s US CPI [consumer price] figures,” wrote Scotiabank analysts Shaun Osborne and Juan Manuel Herrera in a note to clients.
The March inflation rate in the United States is scheduled to be released on Wednesday morning.
The 10-year US Treasury bond yield, a proxy for interest rate expectations, remained unchanged at 1.62 per cent. Meanwhile, at the close of the stock market, the ICE US dollar index was down 0.1 per cent.
In the commodities market, US oil prices fell earlier in the day but rose 0.8 per cent at the close of the stock market to more than $65 per barrel. Following the weekend hacking of the Colonial pipeline, oil prices have risen. Gold prices fell 0.2 per cent to $1,833 per ounce.