U.S. Stocks Slump as Inflation Data Stokes Rate-Hike Speculation

Brian Belski: 15-20-Year Equity Bull Run Has Barely Begun
  • Consumer, utility shares lead declines as Treasury yields rise
  • Traders lift probability for rate increase in June Fed meeting

U.S. stocks slid, after losses deepened in afternoon trading, as reports on inflation and housing bolstered speculation the Federal Reserve will lift interest rates as early as June.

Consumer-staples companies plunged, with Kraft Heinz Co. posting its steepest decline in six months. Utility shares also sank as rising Treasury yields made their dividends less attractive. After disappointing results from Macy’s Inc. sent chain-store shares tumbling last week, Home Depot Inc. slumped today following comments by executives that same-store sales gains shrank as the first quarter progressed.

Energy producers and transportation stocks were the only two industries to hang onto gains in the S&P 500. The benchmark retreated 0.9 percent to 2,047.21 at 4 p.m. in New York. The index had rebounded yesterday after crude prices rallied and Apple Inc. climbed after Berkshire Hathaway Inc. disclosed a stake in the company. The Dow Jones Industrial Average lost 181 points, or 1 percent, to 17,529.98 today.

“The Fed speak is spooking equities,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York, said by phone. “People were chasing the market after yesterday, and when the Fed talk started to hit the tape, they took their feet off the gas pedal and that’s created a bit of a vacuum.”

Reports today showed the cost of living in the U.S. climbed in April by the most in three years and residential starts increased. That prompted traders to boost the probability the Fed will increase rates in June to 14 percent, up from 4 percent yesterday. The first month with even odds of higher borrowing costs also moved up to November.

Adding to speculation tighter policy may come as early as next month, Fed presidents -- Dennis Lockhart and John Williams -- said today that at least two interest-rate increases may be warranted this year, while the central bank’s Robert Kaplan said a hike may be needed in the not-too-distant future. Investors are also awaiting minutes from the Fed’s April meeting, which are due tomorrow.

“This selloff happened really quickly and then it became evident that Fed governors were out there banging the drum for higher interest rates,” said Walter “Bucky” Hellwig, who helps manage $17 billion as senior vice president at BB&T Wealth Management in Birmingham, Alabama. “Equity investors stepped aside and anything yield-oriented seemed to selloff, which is a knee-jerk reaction to higher rates.”

LendingClub Corp., which plunged 51 percent last week, declined 8.6 percent. The company said the scandal involving the surprise departure of its leader and disclosure of faulty internal controls is prompting investors to suspend debt purchases and spurred a U.S. Justice Department probe.

AbbVie Inc. sank 3.5 percent after a U.S. agency said one of the patents on its top-selling arthritis drug Humira may be invalid.

Meanwhile, transportation stocks rose, with the Dow Jones Transportation Average adding 0.6 percent. Avis Budget Group Inc., Kirby Corp. and American Airlines Group Inc. all increased.

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