Stock Market Today: Inflation Sinks Its Teeth Into Stocks

2021's brewing jitters over inflation turned into a proper scare Wednesday, as a higher-than-expected consumer price index (CPI) reading for April had investors making a beeline for the exits.

The Labor Department revealed that consumer prices jumped last month by 4.2% year-over-year – the fastest such rate since September 2008 and above consensus estimates for 3.6%. Barclays economists Michael Gapen and Pooja Sriram note that outsized jumps in prices for vacation lodging, air travel and used cars pushed the needle but are unlikely to be sustained.

"That said, after excluding these three components, core inflation would have risen 0.4% on the month, slightly higher than our and consensus expectations," they say. "In other words, transitory pandemic influences clearly contributed to the surge in April inflation, but there is some residual firmness in core inflation that is hard to ignore."

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Investors certainly didn't give it a pass.

The technology (-2.8%) and consumer discretionary (-3.4%) sectors led the market lower Wednesday, resulting in a deep 2.7% loss to 13,031 for the Nasdaq. Notable losers there included Apple (AAPL, -2.5%) and Microsoft (MSFT, -2.9%), which also weighed on the Dow Jones Industrial Average (-2.0% to 33,587) and S&P 500 (-2.1% to 4,063).

The lone bright spot in the market was the energy sector, which finished up 0.5%. That came amid a 1.2% jump in U.S. crude oil futures, which settled at $66.08 per barrel.

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Other action in the stock market today:

• The small-cap Russell 2000 was bludgeoned to the tune of 3.3% to close at 2,135.
• Hertz Global Holdings (HTZGQ, +55.0%) was spared from the broad-market bloodbath, and in fact sprinted in the other direction, after a group of investment firms won a $6 billion shareholder-friendly bid to take control of the car rental concern and fund its Chapter 11 bankruptcy. Knighthead Capital Management and Certares Management were part of the group that submitted the winning offer, which includes a nearly $8-per-share payment to HTZ stockholders.
• Lemonade (LMND, -18.5%) sold off sharply after reporting earnings. While the online insurance company reported higher-than-expected revenue of $23.5 million in the first quarter, it swung to a wider-than-anticipated net loss of 81 cents per share as claims spiked following the massive winter storm in Texas this February.
• Gold futures slipped 0.7% to finish at $1,822.80 an ounce.
• The CBOE Volatility Index (VIX) sharply improved for a third straight day, rocketing 26.3% higher to 27.59, its highest level since early March.
• Bitcoin prices weren't spared from Wednesday's pain, declining 3.7% to $54,588.65. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

Don't Panic. Prepare.

While Barclays and other strategists believe most of these inflationary pressures will ease as the year progresses, it's important to at least recognize potential worse-case scenarios.

Consider these thoughts from Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, a registered investment advisor:

"The question isn't whether inflation returns or not … but whether the Fed will act in time to keep it contained. If they time everything perfectly – and we would suggest that even they realize how difficult that would be to do – then inflation won't rise far above 2%, but otherwise we are headed higher than that, and ultimately the Fed will need to tighten monetary policy, which is what will likely cause the next recession and end this bull market."

It might not get that bad, of course.

"Inflation and interest rate jitters are hitting the market today, but for now the sell-off has been orderly," says Cliff Hodge, Chief Investment Officer for Cornerstone Wealth. "Letting some air out of these sky-high valuations is a positive going forward. We're heading to the seasonally slow time of the year, so sell in May is top of mind. We're using the volatility to continue to move up in quality and size."

Regardless of how hot the economy gets, and for how long, one way to protect yourself is by minding your income.

Dividend growth stocks, for instance, help beat back the erosive nature of inflation on spending power by ensuring that your payments increase every year.

And faithful dividend payers with ample yields will help you weather price volatility brought on by inflation worries or other market concerns by ensuring some form of return even when your shares are down on their luck. Here, we take a fresh look at 20 such dividend stocks, each of which boast long strings of uninterrupted payouts thanks to rock-solid financial foundations, and that collectively yield more than 4% on average.