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Stocks Fall this Week as Rising Inflation, Eroding Sentiment Weigh on Markets

Friday, June 10, 2022 04:26 PM | Nick Dey
Stocks Fall this Week as Rising Inflation, Eroding Sentiment Weigh on Markets

Stocks fell this week as the Nasdaq and Russell 2000 endured the brunt of the selling.

Despite Bitcoin reclaiming the $31,000 mark earlier in the week, cryptos were flat over the last seven days as the flagship crypto gave back most of its gains. Bitcoin rose 0.55% since last Friday, while Ethereum lost 0.65% during the same period.

While earnings were light this week, they weren’t without plenty of notable reports that garnered sweeping price moves both higher and lower. However, the biggest stories this week came from a pair of economic events on Friday and news out of China that sent DiDi (DIDI) and its fellow U.S. -listed Chinese stocks to the moon.

Inflation

Friday’s CPI report was the biggest event of the week and was most certainly a big letdown to the peak inflation narrative as the persistently rising inflation could force the Fed down a more aggressive path to fight rising prices.

The Consumer Price Index rose to a 40-year high in May to a yearly rate of 8.6%. CPI rose 1.0% during the month.

There was a lot to unpack from the report. Nearly every index rose during the month, which is a huge red flag. Currently, consumers' resilient spending is keeping discretionary stocks afloat, but as prices down the aisle and at the pump continue to rise, this will be challenged.

The most-recent retail sales report, which represented April’s sales, showed spending increased across most discretionary categories. Further, in the April PCE report, personal spending rose as the savings rate continued to fall and wage growth was outpaced by inflation.

This is all to say, at some point, consumers eventually get priced out of resilience. With the savings rate already down to 4.4% after finishing last December at 8.7%, consumer spending will continue to be strained and tested.

Sentiment

The preliminary reading for the University of Michigan’s Index of Consumer Sentiment highlighted this narrative as it recorded its lowest ever reading.

Sentiment unexpectedly fell to a reading of 50.2. The Current Economic Conditions index fell to 55.4 from 63.3 and the Index of Consumer Expectations fell to 46.8 from 55.2.

The Index, which is derived from a survey of consumers, showed that 46% of consumers attribute their negative views to inflation, particularly in reference to gas prices. The previous report showed that 38% of respondents reported the same.

This underscores how more and more individuals are starting to face the effects of inflation.

China

While stocks fell this week, we actually started off on a positive note following bullish news out of China.

The Wall Street Journal reported Monday that China's probe of DiDi probe could be concluded as early as this week. There hasn’t been any news on that yet, so as far as markets are concerned, we should hopefully get to react to the results of the conclusion next week.

Alibaba (BABA) surged when its probe concluded as the record fine was outweighed by the removal of intense scrutiny by the Chinese government.

While the unknown becoming known is a calming event for investors, DiDi and others already surged by high double digits on this news. That doesn’t mean a favorable conclusion won’t rally the stock, but it is to say that it's entirely possible that the foresight of a conclusion meant it already got priced in.

Further, investors should be aware that China clamped down and crashed these stocks during a good market and conveniently are concluding it while the country’s covid-zero policy tears its economy up. The WSJ article said nothing about the intense regulation being ended, just that an investigation is being paused.

Learn more on the full scope here.

All told, stocks mostly fell this week. The S&P 500 dropped 5.05%. The Dow dropped 4.58%, while the Russell 2000 fell 4.04% and the Nasdaq lost 5.6%.

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