The May CPI report caused a sell-off in the markets on Friday, with the Dow Jones Industrial Average losing 880 points or 2.73 percent. The S&P 500 lost 2.91 percent, while the Nasdaq fell 3.52 percent for the day.
Almost every stock on the Dow ended up in the red on Friday. Losers outnumbered winning stocks by more than 5 to 1 on the New York Stock Exchange.
This was the 10th out of the past 11 weeks the DJIA has seen a negative return. Last week was the 9th week out of the past ten weeks that the S&P 500 and the Nasdaq lost ground, and the worst week since January.
For the week, the Dow lost 4.58 percent, the S&P 500 lost 5.05 percent, and the Nasdaq lost another 5.60 percent. For the year, the Dow is down 13.6 percent, and the S&P 500 is down 18.2 percent. Year-to-date, the Nasdaq composite is now down 27.5 percent.
The bond market is down 9.8 percent for the year. The 10-year Treasury closed the week at 3.165 percent, and the 2-year Treasury ended the week at 3.067 percent.
Oil continues its upward climb, closing the week at $120.47 per barrel for West Texas Intermediary. The national average for gas has now gone above $5 per gallon. The higher gas prices now cost Americans about $160 more per month than a year ago.
The much-anticipated consumer price index numbers released on Friday were not pretty. The report showed that inflation worsened, when it was hoped that the numbers would show inflation slowing.
The consumer price index (CPI) showed an 8.6 percent increase in prices, more than the predicted increase of 8.3 percent. That is the fastest increase since December 1981. Taking out the more volatile food and energy prices, the core consumer price index (core CPI) was 6 percent, slightly higher than the 5.9 percent estimate. The CPI was up 1 percent over last month, and the core CPI showed an increase of 0.6 percent.
Housing or shelter prices, which account for one-third of the CPI, increased 0.6 percent, the fastest one-month gain since March 2004. Shelter costs showed a 12-month increase of 5.5 percent, the most since February 1991.
Energy prices increase 3.9 percent from a month ago, for an annual gain of 34.6 percent. In the energy category, fuel oil showed the biggest gain of 3.9 percent over a month ago, bringing the annual increase to 106.7 percent.
And, as if we didn’t already know, food prices increased another 1.2 percent in May and a year-over-year gain of 10.1 percent.
These numbers mean that workers took another pay cut during April since inflation cuts into paychecks. When accounting for inflation, real wages dropped 0.6 percent in April, even though the report showed that the average hourly earnings rose 0.3 percent. According to the Bureau of Labor Statistics, real average hourly earnings were down 3 percent on a 12-month basis.
Last Friday’s CPI report cooled off hopes that inflation had peaked already and increased fears that a recession is next for the U.S. economy. The report makes it almost a certainty that the Federal Reserve will raise rates another 50 basis points at their next meeting in June.
The Atlanta Fed GDPNow Tracker predicts an annualized gain in the GDP of 0.9 percent for the second quarter, raising fears that it could be worse and lead to a recession. Because of the surprising 1.5 percent drop in GDP for the first quarter, the second quarter could easily come in negative.
On Thursday, the initial jobless claims jumped to their highest level since mid-January. First-time unemployment filings for the week ending June 4 came in at 229,000, with an increase of 27,000. Despite the rise, the employment picture is still strong, with the four-week moving average at its lowest level since January 10, 1970.
Mortgage rates jumped again last week ahead of this week’s Federal Reserve meeting. The average 30-year mortgage climbed to 5.23 percent, up from 5.09 percent last week. A year ago, at this time, the average rate was 2.96 percent.