After recovering from an early move to the downside, stocks showed a lack of direction over the course of the trading session on Wednesday. The major averages climbed off their early lows and spent the rest of the day bouncing back and forth across the unchanged line.
The major averages eventually ended the session in negative territory but well off their worst levels. The Dow slid 208.54 points or 0.7 percent to 30,772.79, the Nasdaq edged down 17.15 points or 0.2 percent to 11,247.58 and the S&P 500 fell 17.02 points or 0.5 percent to 3,801.78.
The early weakness on Wall Street came as a Labor Department report showing a bigger than expected increase in U.S. consumer prices added to concerns about the outlook for interest rates.
The Labor Department said its consumer price index shot up by 1.3 percent in June after jumping by 1.0 percent in May. Economists had expected consumer prices to leap by 1.1 percent.
With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1 percent in June, reflecting the biggest increase since November 1981.
Economists had expected the annual rate of consumer price growth to accelerate to 8.8 percent in June from 8.6 percent in May.
Excluding increases in prices for food and energy, core consumer prices advanced by 0.7 percent in June after climbing by 0.6 percent in May. Core prices were expected to rise by another 0.6 percent.
While the annual rate of core consumer price growth slowed to 5.9 percent in June from 6.0 percent in May, the rate of growth was expected to decelerate to 5.7 percent.
The bigger than expected jump in consumer prices has solidified expectations the Federal Reserve will raise interest rates by 75 basis points later this month and increases the likelihood of another 75 basis point rate hike in September.
Traders continue to express concerns the Fed’s aggressive fight to contain elevated inflation will inadvertently push the economy into a recession.
Later in the day, the Fed released its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts, which noted U.S. economic activity has expanded at a modest pace since mid-May.
However, the Fed said several districts reported growing signs of a slowdown in demand, with contacts in five districts noting concerns over an increased risk of a recession.
The report said most Fed districts reported that consumer spending moderated as higher food and gas prices diminished households’ discretionary income.
On the inflation front, the Fed noted substantial price increases were reported across all districts, at all stages of consumption, although three quarters noted moderation in prices for construction inputs such as lumber and steel.
While most of the major sectors ended the day showing only modest moves, gold stocks moved sharply higher, driving the NYSE Arca Gold Bugs Index up by 2.7 percent.
The rally by gold stocks came amid an increase by the price of the precious metal, with gold for August delivery climbing $10.70 to $1,735.50 an ounce.
Considerable strength also emerged among steel stocks, as reflected by the 1.5 percent gain posted by the NYSE Arca Steel Index.
On the other hand, banking stocks showed a significant move to the downside on the day, dragging the KBW Bank Index down by 1.5 percent.
Transportation stocks also saw notable weakness, resulting in a 1.3 percent drop by the Dow Jones Transportation Average.
Delta Air Lines (DAL) helped lead the sector lower, tumbling by 4.5 percent after reporting weaker than expected second quarter earnings.
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index rose by 0.5 percent, while China’s Shanghai Composite Index inched up by 0.1 percent.
Meanwhile, the major European markets moved to the downside on the day. While the German DAX Index slumped by 1.2 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index both slid by 0.7 percent.
In the bond market, treasuries showed a notable turnaround after seeing early weakness, closing firmly positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.4 basis points to 2.904 percent after reaching a high of 3.071 percent.
Data on producer price inflation is likely to attract attention on Thursday along with the latest weekly jobless claims report.
On the earnings front, financial giants JPMorgan Chase (JPM) and Morgan Stanley (MS) are among the companies due to report their quarterly results before the start of trading on Thursday.
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