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It was a choppy day for stocks as investors unpacked the latest consumer price index (CPI). Data released by the Labor Department this morning showed that prices consumers paid for goods and services in April rose at an annual rate of 8.3% – down from March's 8.5% pace to mark the first drop in inflation in eight months. While encouraging at first glimpse, there were concerning signs deeper inside the report.
For instance, the decline in CPI last month reflected a drop in gas prices, which have since rebounded. Food prices remained elevated, while airfare and restaurant bills increased ahead of the key summer travel season. And core CPI, which excludes the volatile energy and food categories, rose 0.6% on a sequential basis – double what it was in March.
"While this report appears to mark the first that shows some moderation from the ever-rising pace of inflation since September of last year, one data point does not necessarily make a trend; and the rise in core CPI should lead to some consideration that the moderation in inflation will not be quick," says Jason Pride, chief investment officer of private wealth at wealth management firm Glenmede.
With prices already high, Pride said, it should be harder for the CPI to continue to rise at the same pace, especially with the Federal Reserve also hiking interest rates to combat higher prices. "However, it will likely take multiple reports for such a trend [of moderating inflation] to clearly establish itself," he says.
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This sentiment is echoed by Mike Loewengart, managing director of Investment Strategy at E*Trade. "Today's read is a stark reminder that the journey to pre-pandemic levels of inflation will be a long one," Loewengart says. "Although inflation slowed from March, the market's reaction suggests that record high prices continue to weigh heavy on investors psyches. And with inflation persistently hot, the Fed has more fodder for increased rate hikes, which the market doesn't often welcome with open arms."
After bouncing between gains and losses in early trading, markets took a decisive turn lower this afternoon. At the close, the Nasdaq Composite was down 3.2% at 11,364, the S&P 500 Index was off 1.7% at 3,935 and the Dow Jones Industrial Average was 1.0% lower at 31,834.
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Other news in the stock market today:
Inflation remains top of mind for investors. This is according to the latest Charles Schwab Trader Sentiment Survey, which reviews the outlooks, expectations and trading patterns of 845 Charles Schwab and TDAmeritrade clients. Inflation was the main concern for those surveyed in the report (20% of respondents), followed by geopolitics (15%) and recession/domestic politics (12% apiece). And nearly half of participants (45%) do not believe inflation will begin to ease until 2023.
"Overall, in the second quarter, market sentiment among traders is unquestionably skewing bearish," says Barry Metzger, head of trading and education at Schwab. But market participants do see investing opportunities, the report notes.
Among the sectors survey respondents are most bullish on at the moment are energy (70%) and utilities (54%). The industries they are most upbeat toward include cybersecurity (71%) and agriculture (70%).
And 70% of those surveyed are interested in seeking out opportunities in defense stocks. While Russia's invasion of Ukraine has unsettled many parts of the stock market, it has also sparked an increase in global military spending, which could create a potential boon for the industry. Here, we've compiled a quick list of defense stocks that are poised to benefit from this spending build. The names featured include familiar names as well as some under-the-radar picks – and they all sport top ratings from Wall Street's pros.
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