Nasdaq Composite fell 3.2% as stock sell-off picked up pace

U.S. stocks resumed their slide on Wednesday after unexpectedly popular “core” inflation data raised expectations for aggressive policy tightening, pushing the tech-heavy Nasdaq Composite down nearly 30% from an all-time high.

Growth stocks, seen as particularly sensitive to rising interest rates, led losses, with the Nasdaq down 3.2%. The blue-chip S&P 500 rose 1.2% earlier in the session and ended down 1.6%.

Consumer prices in the world’s largest economy rise on average 8.3% In April, it was down from 8.5% in March, but still at an all-time high. The figure beat economists’ expectations for a decline to 8.1%. The month-on-month change in core inflation, which excludes food and energy prices and is closely watched by economists, also beat expectations of 0.6%.

Rising costs for new cars, food, airfare and housing were the biggest drivers of higher prices for consumers, the Labor Department said.

“The Fed should pay attention to this report given that price gains in core sectors appear to be spreading,” TD Securities said in a note to clients.

Traders expect the Federal Reserve to hike interest rates aggressively for the rest of the year as consumer prices soar, weighing on short-term U.S. government debt.

The yield on the two-year U.S. Treasury note, which is particularly sensitive to monetary policy, rose 0.03 percentage point to 2.64% from below 0.2% a year ago. Yields rise when prices fall.

In contrast, the yield on the 10-year Treasury note, driven by longer-term economic trends, fell 0.06 percentage point to 2.93%.

“Today’s report will strengthen the Fed’s resolve to aggressively tighten policy at its upcoming meeting, making clear expectations [half percentage point] said Silvia Dall’Angelo, senior economist at Federated Hermes.

Futures markets show investors expect the Fed’s main interest rate, currently set between 0.75% and 1%, to hit 2.75% by the end of the year. Investors ramped up bets on the pace of rate hikes following Wednesday’s release of inflation data, but expect year-end rates to remain slightly below last week’s highs.

European stocks and U.S. stock futures had risen ahead of the inflation report, as investors believed higher prices would show more signs of peaking as higher energy costs fueled by Russia’s invasion of Ukraine dampened consumer spending.

“There’s a sense that people are cutting back in order to fill up their gas tanks and heat their homes,” said Brian Nick, chief investment strategist at Nuveen. “That was clearly not the case last month.”

Investors and analysts warned on Wednesday that even if inflation has now peaked, it could remain elevated for some time, pushing the central bank to keep raising borrowing costs. The Fed last week raised its key interest rate by half a percentage point and signaled further increases, with a goal of averaging 2 percent inflation over time.

“It’s not just about inflation peaking, it’s about the future trajectory,” said Aeneka Gupta, head of research at exchange-traded fund provider WisdomTree. “We think it will be a long, long process to get back to a level where the central bank can feel comfortable.”

Elsewhere, the Stoxx Europe 600 rose 1.7%. Brent crude, the international oil benchmark, rose 4.9 percent to $107.51 a barrel.

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