U.S. stocks tumble as inflation concerns weigh on investor sentiment

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13th April 2024 – (New York) U.S. stocks experienced a notable decline on Friday as concerns over rising inflationary pressures weighed heavily on investor sentiment. The Dow Jones Industrial Average dropped by 475.84 points, or 1.24 per cent, to close at 37,983.24. The S&P 500 also experienced a significant downturn, sinking 75.65 points, or 1.46 per cent, to 5,123.41. Similarly, the Nasdaq Composite Index shed 267.10 points, or 1.62 per cent, ending the day at 16,175.09.

All 11 primary sectors of the S&P 500 closed in the red, with materials and technology leading the decliners by falling 1.77 per cent and 1.64 per cent, respectively. The utilities sector experienced the mildest decline, down 0.74 per cent.

Investor concerns regarding persistent inflationary pressures have been growing. On Friday, the consumer sentiment index for April was reported at 77.9, falling short of the Dow Jones consensus estimate of 79.9, according to the University of Michigan’s Surveys of Consumers.

Multiple Federal Reserve officials emphasized the need for patience in adjusting monetary policy due to the ongoing inflationary pressures. Mary Daly, president of the Federal Reserve Bank of San Francisco, stated, “Policy is in a good place right now, and I need to be fully confident that inflation is on track to come down to 2 per cent, which is our definition of price stability, before we would consider a rate cut.” Daly stressed that there is currently no urgency to adjust the policy rate.

Rob Haworth, U.S. Bank Wealth Management senior investment strategist, noted, “We’re seeing a flight to safety trade, with the dollar strengthening and equities selling off. Investor sentiment is shifting towards risk aversion heading into the weekend.”

Barclays analyst Venu Krishna pointed out that although the percentage of constituents in the S&P 500 outperforming the index has increased, it remains far from the levels seen during the broad-based rally in 2021. Krishna mentioned that the U.S. equity rally is gradually broadening, but there is still a considerable distance to establish a truly diverse foundation. Additionally, the uncertainty surrounding interest rates poses a growing risk, particularly during market declines when correlation tends to spike.

Over the next two weeks, investor attention will be focused on the financials sector as 50 per cent of S&P 500 companies are scheduled to release their first-quarter earnings. On Friday, JPMorgan Chase, Wells Fargo, and Citigroup kicked off the earnings season. JPMorgan Chase’s stock plummeted by 6.47 per cent after the release of its first-quarter results, as the bank indicated that its net interest income might fall slightly below analysts’ expectations for the year 2024. Wells Fargo declined by 0.39 per cent, while Citigroup’s stock fell 1.7 per cent, despite surpassing revenue expectations. Next week, earnings reports from Goldman Sachs and other major banks will be closely watched by investors.