For a second day we had panic selling, but about twice as worse than yesterday with the Dow plummeting 681 points, the Nasdaq 357.  Today’s trigger was a CPI report that prices had gone up 3% vs a target of 2%, 50% higher than expected. This is despite the fact that we know the problem is a temporary one caused by a supply chain breakdown due to suppliers being caught with their pants down. It’s Econ 101: as the recovery continues, there is more employment and stimulus; with the added cash in the economy, there is more spending. With more spending prices go up, thus inflation. But inflation has been at rock bottom for so long that any stimulus at all was bound to cause a spike; but even this spike is nothing compared to historical inflationary trends. Much ado about nothing. Investors should be buying the dip. Today’s expert opinion, “The big question is just how long can the Fed maintain its dovish stance in opposition to the markets?” Isn’t this a tad presumptuous? I think the Fed knows more about inflation than investors do.  Investors panic at the slightest sign of bad news. 87% of the S&P have beaten Q1 estimates. Volume continues to be very brisk at 11.8 billion. 

Wed  May 12, 2021  4:28 PM EDT

Wall Street closes sharply lower as inflation fears heat up

Stephen Culp          

DJ: 34,269.16  -473.66        NAS: 13,389.43  -12.43         S&P: 4,152.10  -36.33      5/11

DJ: 33,587.66  -681.50        NAS: 13,031.68  -357.75       S&P: 4,063.04  -89.06      5/12

(Reuters) Wall Street closed lower on Wednesday with the S&P suffering its biggest one-day percentage drop since February, as inflation data fueled concerns over whether interest rate hikes from the Fed could happen sooner than anticipated.  All three major U.S. stock indexes ended the session deep in negative territory in the wake of the Labor Department's April consumer prices report, which showed the biggest rise in nearly 12 years. read more  The report, which measures the prices U.S. consumers pay for a basket of goods, was hotly anticipated by market participants who have grown increasingly worried over whether current price jumps will defy the U.S. Federal Reserve's reassurances by morphing into long-term inflation.  But pent-up demand from consumers flush with stimulus and savings is colliding with a supply drought, sending commodity prices spiking, while a labor shortage drives wages higher.

"The topic on everyone's mind is obviously inflation," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "It's something the (Fed) has been looking for and they're finally getting their wish."  "The question is how long will its fires run hot before starting to simmer?"  That concern is shared by Stuart Cole, head macro economist at Equiti Capital in London.  "Going forward, the big question is just how long can the Fed maintain its dovish stance in opposition to the markets," Cole said. "Particularly if companies begin raising wages to encourage unemployed labor back into the workforce, in turn driving a large hole in the Fed’s transitory inflation argument."

Core consumer prices (CPI), which exclude volatile food and energy items, grew at 3% year-on-year, shooting above the central bank's average annual 2% inflation growth target.

The Dow Jones Industrial Average fell 681.5 points, or 1.99%, to 33,587.66, the S&P 500 lost 89.06 points, or 2.14%, to 4,063.04 and the Nasdaq Composite dropped 357.75 points, or 2.67%, to 13,031.68.  Of the 11 major sectors in the S&P 500, 10 closed in negative territory, with consumer discretionary down most.

Market-leading mega-caps, including Amazon.com Inc (AMZN.O), Apple Inc (AAPL.O), Alphabet Inc (GOOGL.O), Microsoft Corp (MSFT.O) and Tesla Inc (TSLA.O), weighed heavily as investors shied away from what many feel are inflated valuations.  "The CPI number being stronger than expected has led to further weakness in tech stocks," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. "Tech investors are concerned that higher rates are going to lead to multiple compression and less attractive valuations for tech names in a higher rate environment."

Bumble Inc (BMBL.O) slipped ahead of the online dating platform's first-quarter results expected after the closing bell.

First-quarter earnings season is on the wane, with 456 constituents of the S&P 500 having reported. Of those, 86.8% have beaten consensus estimates, according to Refinitiv IBES.  The CBOE Volatility index, a gauge of market anxiety, close at 27.64, its highest level since March 4. 

Declining issues outnumbered advancing ones on the NYSE by a 6.05-to-1 ratio; on Nasdaq, a 3.84-to-1 ratio favored decliners.  The S&P 500 posted nine new 52-week highs and no new lows; the Nasdaq Composite recorded 34 new highs and 118 new lows.

Volume on U.S. exchanges was 11.82 billion shares, compared with the 10.44 billion average over the last 20 trading days.