Stan Choe
US stocks are falling after a report showed inflation was worse across the country last month than economists expected.
The S&P 500 fell 0.8 per cent and gave back some of its big rally from the day before. The Dow Jones Industrial Average was down 291 points, or 0.6 per cent, in early afternoon trade, and the Nasdaq composite was 1.3 per cent lower.
The Australian sharemarket is set to decline, with futures at 4.56am AEDT pointing to a fall of 61 points or 0.7 per cent, at the open. The ASX jumped 1.1 per cent on Tuesday. The Australian dollar was weaker at US68.54¢.
Pressure from the bond market undercut stocks following the discouraging report on inflation. People had to pay prices for groceries, electricity and other costs of living that were even higher last month than economists expected. That could push the Federal Reserve to hike its main interest rate at its next meeting in December and beyond.
Higher interest rates can help rein in inflation, but they do so by making it more expensive for everyone to borrow money and by slowing the overall economy. Higher rates also make investors less willing to pay high prices for stocks and other investments.
One Fed official even hinted the central bank may increase the federal funds rate by double the typical amount next month because of how high inflation has remained for years.
Speaking in London before the inflation report was released, Fed Governor Christopher Waller said “a stronger policy move may be needed” if the report showed an important underlying measure of inflation rose by 0.3 per cent from September.
In that case, he said the Fed should consider hiking the federal funds rate by half a percentage point rather than the typical quarter point. Moving by only the usual amount could “put our credibility at risk, a risk I am not eager to take.”
Shortly afterward, Tuesday’s inflation report showed that the underlying measure of inflation Waller was worried about was exactly 0.3 per cent, the threshold he had set. It’s the Fed’s job to keep inflation under control, along with keeping the job market strong.
That sent yields jumping in the bond market as traders upped their forecasts for coming hikes to rates by the Fed.
The yield on the 10-year Treasury jumped to 5.02 per cent from 4.88 per cent late Monday. It’s a notable move for the bond market, and the yield helps set where rates are for mortgages and other loans going to US households and businesses.
The 10-year Treasury yield had been dropping since early October, when it topped 5.30 per cent as worries spiked about high inflation, higher interest rates, the US government’s big debt and other concerns.
Tuesday’s jump in yields came even though oil prices fell again. The price for a barrel of Brent crude oil fell 0.7 per cent to $US91.91. President Donald Trump said late Monday that the war in Iran, which sent oil prices much higher, “militarily is effectively over.”
Brent’s price has been falling from more than $US112 at the start of the month amid uncertainty about what will happen with the war with Iran.
Jumps in Treasury yields push downward on prices for all kinds of stocks, and they can particularly hurt companies in the real-estate business.
Higher mortgage rates can keep potential customers away from homebuilders, for example, and Lennar fell 4.8 per cent for one of the sharper losses in the S&P 500.
Rival homebuilders also fell, including drops of 3.9 per cent for D.R. Horton and 3.8 per cent for PulteGroup. Builders FirstSource, which sells crown mouldings, cabinets and other products to homebuilders, sank 3.8 per cent.
The single heaviest weight on the S&P 500 was Nvidia, which fell 6.3 per cent. It’s been under pressure since its board announced an investigation into its CEO, Jensen Huang, who admitted to a relationship with a woman who, according to The New York Times, US intelligence determined was gathering information for China.
It’s also been swinging amid broader worries that have knocked the artificial-intelligence industry around recently. Democratic victories in statehouses across the country last week raised concerns about possible restrictions on construction of AI data centres. That built on top of already longstanding worries that AI stock prices had shot too high and were in a bubble.
Other stocks in the AI industry also slipped. GE Vernova, which is helping to power AI data centres, dropped 6.2 per cent. Micron Technology, which sells memory for computers, fell 3.7 per cent after flipping between gains and losses earlier in the morning. CoreWeave, a company that rents out access to AI chips to customers over the cloud, fell 2.2 per cent.
Advanced Micro Devices held up better and was mostly unchanged.
The recent shakiness for AI-related stocks had raised questions about whether Anthropic, the company behind the Claude chatbot, may delay its initial public offering of stock.
But Anthropic said in a filing with US regulators that it’s looking to sell its stock at a price that values the company at roughly $US1.4 trillion ($2 trillion). That would make it one of the most valuable companies on Wall Street, worth more than Walmart, JPMorgan Chase, ExxonMobil or Coca-Cola.
In stock markets abroad, indexes rose across much of Europe and Asia.
South Korea’s Kospi jumped 4.4 per cent for one of the world’s biggest gains on strength for its two tech giants that have benefited from the AI boom, Samsung Electronics and SK Hynix.
AP
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