Stock Market Today: Dow Falls, Bitcoin Plunges

The stock market rallied Thursday night to erase most of its losses. Investors continued to worry about the impact of inflation and the Federal Reserve’s tightening monetary policy on the economy.

the


Dow Jones Industrial Average

fell 104 points, or 0.3%, while


S&P500

decreased by 0.1%, and the


Nasdaq Compound

increased by 0.1%. If the S&P 500, which is currently trading at 3930, falls to 3837, it would mark a bear market, down 20% from its all-time high, reached in early January.

For starters, the latest inflation data releases didn’t help ease investor concerns. The producer price index rose 11% year-over-year in April, the Labor Department reported Thursday, above estimates of 10.7% and slightly lower than the increase of 11.2% from March.

“We’ve probably also seen the peak in the rate of change in wholesale prices, but the price pressures are still quite intense,” wrote Peter Boockvar, chief investment officer of Bleakley Advisory Group.

The problem for the stock market is that as business costs rise, they have to raise selling prices, which contributes to higher consumer inflation and encourages the Fed to accelerate interest rate hikes, a threat to economic growth and profits. In addition, some companies cannot raise prices enough and their profit margins suffer.

The PPI result was very similar to Wednesday’s Consumer Price Index result, which fell from March, but not by much. Inflation persists.

The year-over-year gain in the CPI was 8.3% in April, which was lower than the March result, but higher than expected. Markets have to deal with the fact that inflation is not coming down very quickly, which could force the Federal Reserve to raise short-term interest rates more quickly than currently expected. The ultimate result? A potential recession.

“The Fed will want to see clearer evidence that inflation is slowing and higher interest rates are slowing demand before they start thinking about the end point of the current rate hike cycle,” wrote US economist Bill Adams. head of the Comerica Bank.

That may be true, but the markets had digested all that on Wednesday. The market losses come on the heels of inflation-induced declines on Wednesday, which caused all three indices to sell off, with the Nasdaq down more than 3%.

The stock market has clarified one thing over the past few trading days: it has not finished reflecting economic risks. Now below 4,000, the S&P 500 has fallen below key levels at which it had previously found buyers to carry it higher. This opens the door to a potential drop in the index below 3,700 soon, wrote Frank Cappelleri, chief market technician at Instinet.

Other indicators are also pointing to further declines as valuations still look elevated. The cyclically-adjusted S&P 500 price-to-earnings ratio, which shows the level of the index divided by its average inflation-adjusted earnings over the past 10 years, is just a little over 35 times, according to 22V Research.

That’s down from a multi-decade peak of nearly 39 years, reached in the pandemic era. But historically, this ratio typically declines much more from a peak to a trough. The indication is that the decline in the ratio is not even halfway. The reason – fundamentally – is that risk to the economy indicates risk to earnings, and stock prices continue to fall to reflect the potential for earnings below current expectations.

“When selling becomes the main negative catalyst (not fundamentals) it is very difficult to say when it will stop (it usually takes good macro news and we haven’t received any for a while),” wrote Tom Essaye, Founder. from Sevens Report Research.

Overseas, the pan-European


Stoxx 600

fell by 0.8%, and that of Tokyo


Nikki 225

ended down 1.8%.

As for why tech stocks held up the best: bond yields haven’t risen this week. On Friday, the 10-year Treasury yield hit a pandemic-era closing high of 3.13%. Since then, it has fallen to 2.86%. The problem for tech stocks this year is that rising long-term bond yields are making future earnings less valuable and many fast-growing tech companies are valued on the basis that they will produce part of their earnings many years to come. the future. These stocks could see some relief as 10-year yields peak.

Growth stocks with lower market value even managed to make a gain. The iShares Russell 2000 Growth Exchange-Traded (IWO) fund jumped 2.1%. These companies are growing even faster and are valued on the basis of an even longer stream of future earnings.

While the selloff was pronounced in equities, it was even worse in the digital asset space.


Bitcoin,

the largest cryptocurrency, has lost 1.5% in the past 24 hours, trading below $29,000 and down more than a quarter since last week. Smaller cryptos including


Ether

and


Dogecoin,

saw declines of more than 20%.

Here are six stocks in motion on Thursday:

Companies that have tied their fortunes to Bitcoin have over-traded. After falling 26% on Wednesday — following disappointing results and a warning to its customers — the crypto exchange


Coinbase Global

(ticker: COIN) was up 8.9% on Thursday. Software group


MicroStrategy

(MSTR), which holds large Bitcoin holdings, rose 1.8% after falling 25% in the last session.


applovine

(APP) lowered its full-year sales estimate, but shares jumped 35% after executives at the app monetization company raised the possibility of selling the apps business.


Beyond meat

(BYND) stock fell 4.2% after reporting a bigger-than-expected loss.


Rivian Automotive

(RIVN) jumped 18% after the company reported a loss of $1.77 per share, above estimates of $1.45 loss per share, on sales of $95 million, below expectations of $133 million.


waltz disney

(DIS) fell 0.8% after the company reported earnings of $1.08 per share, missing estimates of $1.19 per share, on sales of $20.27 billion, above above expectations of $20.05 billion.

Write to Jacob Sonenshine at [email protected] and Jack Denton at [email protected]

Lance B. Holton