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‘Very Bad’: Ultra-Hot Inflation Print Sends Markets Reeling Anew

Stocks tumbled on Wednesday after inflation accelerated in June more than expected, putting pressure on the Federal Reserve to remain aggressive in its fight against price increases.

<div class="paragraphs"><p>A shopper holds groceries while waiting to checkout inside a grocery store in San Francisco, California, U.S., on Monday, May 2, 2022. (Photographer: David Paul Morris/Bloomberg)</p></div>
A shopper holds groceries while waiting to checkout inside a grocery store in San Francisco, California, U.S., on Monday, May 2, 2022. (Photographer: David Paul Morris/Bloomberg)

Stocks tumbled on Wednesday after inflation accelerated in June more than expected, putting pressure on the Federal Reserve to remain aggressive in its fight against price increases.  

The S&P 500 slumped after data showed the consumer price index rose 9.1% from a year earlier, the largest gain since 1981. The print reaffirmed that inflation has been rampant and widespread throughout the economy. For investors, it reinforced views that the central bank will have to continue to be aggressive in its attempts to tamp it down. the tech-heavy Nasdaq 100 fell more than 2% as the market opened New York.

WATCH: The US consumer price index rose 9.1% from a year earlier, the largest gain since the end of 1981.Source: Bloomberg
WATCH: The US consumer price index rose 9.1% from a year earlier, the largest gain since the end of 1981.Source: Bloomberg

Dennis DeBusschere, the founder of 22V Research called the reading, “very bad.”

‘Very Bad’: Ultra-Hot Inflation Print Sends Markets Reeling Anew

Here’s what else Wall Street is saying:

Dennis DeBusschere, founder of 22V Research:

“Rents will be persistent problems for some time. Commodity prices are a large contributor month-over-month -- transportation as well (transportation + OER are 43% of the number). Transport/commodity prices will move down going forward, so CPI is highly likely to be lower next month. And rents might not get much worse. So maybe that is why rates aren’t up more.”

Art Hogan, chief market strategist at National Securities:

“This is a hot report and markets were anticipating that coming in today with pretty significant drawdowns the last two days. When you get down to the component that is the real average hourly earnings, year-over-year, those are coming down. That’s one piece of the puzzle that is good, the fact that wage-price pressures are easing. One of the things investors likely will start to express is that this is clearly in the rear-view mirror and we have clear evidence that some of the inflationary pressures have eased since June,” he said. 

“Investors look at this and say what does this change? The biggest thing it changes is what the Fed may do in September, and that’s moved higher. That was a 60/40 proposition, with 50 basis points being in the majority there, and now it’s leaning closer to 75% chance that the Fed’s going to go three-quarters of a percentage point in September.”

Florian Ielpo, head of macro research at Lombard Odier Asset Management:

“It is clear that we are on a terminal rate in the US at 4% and that the inversion of the yield curve will continue until -100 bps. The acceleration of the monetary cycle is not yet behind us, and we will have to wait until 2023 to see the Fed consider a pause in its cycle. The ‘good-news-is-bad-news’ mentality will remain firmly in the minds of investors until there is some sign of slowing inflation. This year-end is likely to bring a few more bad surprises - and those bad surprises should be from central banks overall.” 

Sam Stovall, chief investment strategist at CFRA:

“My feeling was that we’ll probably be surprised, pleasantly surprised. Well, I was wrong.” 

“The market was thinking the way I was, that with so much negativity built into the number ahead of it’s being released, that the greater likelihood would be a surprise to the downside, not to the upside,” he said. Stocks are off as a result of most people being taken by surprise, he added. 

“It means that the Fed will be raising rates by 75 basis points not only at the July meeting but also at the September meeting, and that the jury is still out as to what’s going to happen in the final two meetings of the year, but I think three-quarter hikes are definitely in the cards.”

Todd Sohn, an ETF strategist at Strategas Securities:

“It just reinforces this idea that in bear markets, you can get these vicious bounces across the indices and names, but once you get any sort of catalyst like today with this hot CPI print, the pullback happens very quickly. So you have to keep your leashes very tight on names and any positions you have. It’s really difficult to navigate bear market bounces. And we haven’t had to do that in a long time,” he said by phone. “It’s a very fragile backdrop.”

Jay Hatfield, founder and CEO at Infrastructure Capital Advisors:

“CPI printed hot, as expected by most market participants. We forecast that this print will mark the peak of inflation as the Fed’s 15% shrinkage of the monetary base, which is the fastest decline since the great depression, will curb inflation as the QT has caused the dollar to appreciate by over 12% this year which has caused commodities to plummet by over 20% since the measurement period for June CPI.

“QT has caused mortgage rates to almost double which will slow the housing market and slowly cool rent increases. We believe that the beginning of earnings season will help the stock market to stabilize as most US corporations are benefiting from the relatively strong US economy which is benefiting from the European energy crisis.” 

Ian Lyngen, head of US rates strategy at BMO Capital Markets:

“Overall, this was another stronger-than-expected print similar to May’s data and investors will be eagerly awaiting any sign that the Fed will seek to step-up the pace of hikes yet again. It’s unsurprising to see August fed funds contract, now pricing in more than 75 bp and we expect the conversations regarding a 100 bp hike to pick up in earnest. Not our base-case; but we were surprised in June with the upsized hike -- so are waiting on any incoming Fedspeak to clarify the Committee’s thinking on the pace of tightening.”

Neil Dutta, head of economics at Renaissance Macro Research:

“Given my reading of the Fed’s reaction function, the odds of recession are going up and the likelihood of a pivot is going down given today’s CPI inflation data.”

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