Stock Market Today: Persistent Inflation Gut-Punches Tech Stocks

The highest jump for consumer prices in 30-plus years stole headlines Wednesday, but evidence of persistent inflation was the real worry for markets.

A $100 bill on fire
(Image credit: Getty Images)

Stock-market bears got a bit more aggressive Wednesday after a worrisome October inflation report revealed relentlessly rising prices, triggering a spike in bond yields.

The Bureau of Labor Statistics said October's headline consumer price index (CPI) jumped 6.2% over last year's depressed levels – the swiftest such move since 1990 – but more importantly, at a higher-than-expected 0.9% month-over-month, which was its quickest pace since 2008.

Particularly worrisome were signs that climbing consumer costs couldn't just be chalked up to temporary causes such as supply-chain woes.

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"The details within the report signaled strengthening persistent pressures, though transitory forces also picked up," says BofA Securities. "[Rent equivalents] and rent inflation were a big focus for this month: They printed a 0.4%+ MoM clip for a second time, providing additional confirmation of a reset to a higher trend."

BofA notes that rents are the biggest cyclical driver of inflation and "therefore the most crucial component to monitor for persistent price pressures."

However, some – including Rick Rieder, BlackRock's chief investment officer of global fixed income – remain slightly more optimistic that most of the currently inflationary pressures are temporary.

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"It is likely that in time pandemic distortions and extreme base effects will ease, pulling aggregate prices back toward a 2% rate of growth and allowing quantities to continue expanding once supply pressures alleviate," says Rieder, though he concedes "this will take time."

Bond yields immediately responded, jumping roughly 10 basis points to as high as 1.592%. (A basis point is one one-hundredth of a percentage point.) That weighed heaviest on technology and tech-related shares, where higher interest rates can sharply dig into future growth.

"FAANGs" such as Amazon.com (AMZN (opens in new tab), -2.6%) and Google parent Alphabet (GOOGL (opens in new tab), -2.0%) struggled, and red-hot semiconductor shares including Advanced Micro Devices (AMD (opens in new tab), -6.1%) and Nvidia (NVDA (opens in new tab), -3.9%) were put on ice.

The result? The Nasdaq Composite retreated by 1.7% to 15,622, while the S&P 500 (-0.8% to 4,646) and the Dow Jones Industrial Average (-0.7% to 36,079) sustained somewhat lesser declines.

And a reminder: the stock market is open for Veterans Day.

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(Image credit: YCharts)

Other news in the stock market today:

  • The small-cap Russell 2000 declined 1.6% to 2,389.
  • U.S. crude futures slumped 3.3% to settle at $81.34 per barrel, snapping their three-day winning streak.
  • Gold futures gained 1.0% to finish at $1,848.30 an ounce.
  • The CBOE Volatility Index (VIX) popped 5.7% to 18.79.
  • Bitcoin made another run higher Wednesday, flirting with the $69,000 level today before being repelled. As of the afternoon, the cryptocurrency was off 2.5% from yesterday's prices to $65,622.00. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
  • Electric vehicle maker Rivian Automotive (RIVN (opens in new tab)), which is backed by the likes of Amazon.com and Ford (F (opens in new tab)), pulled off the largest U.S. initial public offering (IPO) since 2014. The company raised $11.9 billion, topping every other offering since Alibaba Group (BABA (opens in new tab)). The EV play priced its shares at $78 and jumped as high as $106.75, eclipsing $100 billion in market value – this, despite that Rivian expects to generate less than $1 million in third-quarter revenue. RIVN closed 29.1% higher to $100.73, at a market value of more than $98 million, which is larger than U.S. giants General Motors (GM (opens in new tab)) and Ford.
  • Mastercard (MA (opens in new tab), +3.9%) flashed some green ink amid a sea of red after delivering encouraging projections during an investor-day event. The company said that for 2022-24, it expected to grow net revenues in the high teens (from low teens in 2019-21) and earnings per share in the low 20s (from high teens). The company says it sees "significant untapped opportunity" in the $255 trillion total addressable market for payments. Piper Sandler analyst Christopher Donat maintained his Neutral stance on shares, however, saying that "While we believe that MA has significant opportunities in front of it, many of these opportunities have been available for years."

Protect Yourself From Inflation

The latest CPI report doesn't signal doom for stocks, but it's certainly a hurdle to overcome.

"The bond market is telling you that the [Federal Reserve] is way behind the curve on policy, as short rates rocketed while long rates have taken the release in stride," says Cliff Hodge, chief investment officer for Cornerstone Wealth, who adds that "a flattening curve does not portend well for risk assets into next year."

Chris Zaccarelli, CIO for Independent Advisor Alliance, agrees the Fed might need to speed up their tightening of fiscal policy.

As for stocks?

"We have already been positioning for higher inflation in our investments by using energy companies (opens in new tab) and higher-quality companies (opens in new tab) – those with strong balance sheets, a competitive moat around their business and pricing power – as a way to lessen any impact that higher prices will have on profit margins."

Investors have other ways to protect themselves from rising prices – these five mutual funds (opens in new tab) represent traditional ways to hedge against inflation, though this new ETF with a fresh strategy (opens in new tab) is worth exploring, too.

Indeed, you might have more options than you think. Our look at how to shield yourself from inflation (opens in new tab) contains a variety of ideas, including stocks, ETFs, mutual funds and even commodities. Check it out.

Kyle Woodley was long AMD, AMZN and NVDA as of this writing.

Kyle Woodley
Senior Investing Editor, Kiplinger.com

Kyle is senior investing editor for Kiplinger.com. As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at InvestorPlace.com, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.