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U.S. stocks fell Wednesday to give back some gains from the previous session, as investors further considered remarks from Federal Reserve Chair Jerome Powell that the central bank was set on using its policies to bring down inflation still running at multi-decade highs.
The S&P 500 fell by more than 1% just after the opening bell. The move reversed gains from the prior session, when the blue-chip index gained 2%. The Dow and Nasdaq each also opened lower by more than 1%.
Investors have been weighing upbeat reports on U.S. economic activity against remarks from Federal Reserve officials that the central bank was set to act aggressively to rein in rising prices. Tuesday’s at least short-lived rally came following a couple of solid reports on U.S. economic activity, showing both consumer spending and manufacturing production were holding up strongly. U.S. retail sales grew at a 0.9% rate in April after a sharply upwardly revised 1.4% monthly rise in March, suggesting consumers were continuing to spend even as consumer prices have climbed at the fastest rate since the 1980s. The latest print on U.S. industrial production also exceeded estimates with a jump of 1.1% last month, or more than double the expected rise.
The reports reflected ongoing resilience in some of the key components of domestic activity and helped at least temporarily assuage concerns that the U.S. economy might be imminently tumbling into a downturn. And a still-strong economic backdrop has given the Federal Reserve more room to raise interest rates and otherwise tighten monetary policy to bring down inflation without fear of deeply disrupting growth in other areas like the labor market.
Fed Chair Powell acknowledged to the Wall Street Journal on Tuesday that while “there could be some pain involved in restoring price stability,” he believed the Fed will be able to “sustain a strong labor market.” Powell also said that there remained “broad support” for two more 50 basis point interest rate hikes at the Fed’s next policy-setting meetings, reiterating his view from the Fed’s last meeting earlier this month.
“I don’t think he said anything that caught us off guard … but let’s not forget where we are,” Ryan Detrick, LPL Financial Chief Market Strategist, told Yahoo Finance Live on Tuesday, noting that the S&P 500 has fallen for six consecutive weeks heading into this week. “It hasn’t been down seven weeks in a row for 20 years, so we’re awfully oversold here. Then you come in today and you’ve got industrial production pretty solid, you’ve got retail sales pretty solid. Things aren’t perfect, but we just think so much of the negativity that is priced in … it’s just a little overboard for us, and we think this could very well be an opportunity for some of the longer-term investors here.”
Still, however, concerns over elevated prices, geopolitical concerns in Ukraine and virus-related disruptions in China remain risks to equities. And though consumers have still been spending amid rising inflation, that’s come as many companies have been absorbing increasing labor, raw materials and transportation costs. Walmart (WMT) on Tuesday reported weaker-than-expected quarterly earnings and slashed its profit outlook for the year, citing higher wages and fuel and food costs. Peer big-box retailer Target (TGT) also cut its full-year operating income margin outlook as input and transportation costs remain elevated.
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