US Stocks Drop as Inflation Accelerated in June

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Key Takeaways

• US stock market retreats from record highs as inflation surges 5.4% in June
• Goldman Sachs, JPMorgan report higher-than-expected profits, shares slide

Stocks on Wall Street declined on Tuesday as market participants parsed the latest inflation report accompanied by earnings reports from major US banks. Trading activity picked up in the latter half of yesterday’s session once it became clear that inflation for June surged at the fastest pace in 13 years.

The recovering economy had produced another hot inflation data as the consumer-price index for June rose 5.4% from a year ago, the highest rate of increase since August 2008. The core price index, the one that excludes more volatile categories like food and energy, jumped 4.5% from the same month a year before.

All three benchmark indexes fell following the price report. Retreating from early-session gains, the S&P500 and the Nasdaq Composite turned negative, catching up with the already declining Dow Jones which was already in the red, dragged lower by falling shares in Boeing and other real-economy stocks, including banks that reported their earnings that day.

The S&P500 on Tuesday declined 15.42 points, or 0.35%, to 4,369.21. The Nasdaq Composite lost 55.59 points, or 0.38%, to 14,677.65. The Dow Jones Industrial Average dropped 107.39 points, or 0.31%, to end the session at 34,888.79. All three stock averages pulled back from records set Monday.

A Moderate Rise in Asia as European Markets Remain Flat

The rapid increase in prices, according to the data released from the Labor Department, surprised investors who had hoped for a slower pace of price growth. The report indicated that there has been an uneven climb in the prices of various goods and services. The strong consumer demand has sent prices at restaurants higher by 4.1% in June, compared with the same month a year ago. A surge in traveling has boosted airline fares by 24.6%, while hotel prices were up 16.9% for the 12 months.

The drop in stocks led to rising bond yields. The yield on the benchmark 10-year US Treasury note rose to 1.415%. The reaction to the upside was rather muted as investors had decreased their risk appetite due to the sharp rise in inflation.

In individual stocks, JPMorgan and Goldman Sachs kicked off the quarterly earnings reports before the opening bell on Tuesday. Both investment banking firms announced significant increases in second-trimester profits. JPMorgan posted a profit of $11.95bn, on revenue of $30.48bn, surpassing expectations. Goldman Sachs also topped forecasts as it reported a quarterly profit of $5.49bn, on revenue of $15.39bn.

Still, shares in both US lenders fell. JPMorgan stock declined $2.35, or 1.5%, to $155.65, while Goldman shares slipped $4.52, or 1.2%, to $375.98. Boeing shares slumped $10.09, or 4.2%, to $228.20 after the company said manufacturing problems will most likely lead to a delay in deliveries of the 787 Dreamliner.

Virgin Galactic, the space-tourism company, fell $2.93, or 7.2%, adding to Monday’s biggest selloff for more than a year when shares fell 17%. The company said it could sell as much as $500mn in stock just a day after its founder, Richard Branson, flew to the edge of space alongside five other crew members.

In overseas stock action, European markets were essentially flat on Tuesday and closed the session little changed. In Asia, markets rose moderately.

Bitcoin and cryptocurrencies slid on Tuesday on the lack of new events or a price catalyst that would trigger an upside swing. The largest digital currency ended the day at $32,400, lower by 1.5% on the day.