Stocks Rebound as Inflation Fears Recede, Futures Tick Up

14 May 2021 · 3rd Party Analysis

Stocks Rebound as Inflation Fears Recede, Futures Tick Up


In Summary

  • Stock indexes end their three-day losing streak and push higher on renewed optimism
  • Equity futures on Friday remain positive

Stocks Rebound as Inflation Fears Recede, Futures Tick Up

US stocks staged a strong rebound on Thursday, ending their worst three-day losing streak in months. After a volatile start of the week that saw the major US indexes lose anywhere between 2% to 3%, then move to the upside signaled market participants are digesting the inflation news and are not spooked by higher inflation expectations.

On Wednesday, the equity market experienced a strong drawdown as investors were prompted to sell on a higher-than-expected inflation report that showed consumer prices surged 4.2% in April, according to data from the Bureau of Labor Statistics.

Thursday, however, brought renewed optimism as the market shrugged off the report showing inflation spiked the most since 2008. To seal their confidence, investors jumped once again into highflying tech stocks, consumer staple companies, and all sectors across the board. The Dow Jones Industrial Average advanced 433.79 points, or 1.29%, to end the session at 34,021.45. The S&P500 pushed higher by 49.46 points, or 1.22%, to 4,112.50. And the tech-focused Nasdaq Composite gained 93.31 points, or 0.72%, to finish at 13,124.99.

The positive mood was boosted by a Fed policymaker who reiterated that the central bank expects inflation to be transitory. Fed governor Christopher Waller said Thursday the Federal Reserve needs more months of data on jobs and inflation before it could decide whether to begin tapering its monetary policies.

Investors Wary of Inflation

“The May and June jobs report may reveal that April was an outlier, but we need to see that first before we start thinking about adjusting our policy stance,” Mr. Waller said in a speech. “We also need to see if the unusually high price pressures we saw in the April CPI report will persist in the months ahead.”

Investor’s primary fear over inflation is that higher prices could chip into the value of companies’ future profits, especially growth stocks, such as technology companies. Additionally, to prevent higher inflation from overheating the economy, the Federal Reserve could decide to unwind its monetary stimulus, which currently stands at $120bn worth of bond purchases per month. The ultra-low interest rates could also be lifted to cool down the economy.

While some money managers and analysts still point to signs of concern in the market, the sentiment in the broader market on Thursday lifted some of the biggest decliners in the market selloff earlier in the week. Technology stocks attempted to pare the losses and gained higher. Facebook advanced nearly 1%, while Alphabet bounced by 1.3%. Apple jumped 1.8%, and Microsoft popped 1.7%.

Tesla was among the losers yesterday, likely because of the announcement by Elon Musk that his company suspends car purchases with Bitcoin. Citing environmental concerns, the Tesla chief said the EV maker will no longer accept Bitcoin as payment for its electric cars. On Thursday, Tesla slipped $18.20, or 3.09%, to $571.69.

Futures contracts tied to the stock indexes on Friday point to a positive open. Dow futures and S&P futures are positive by roughly 0.50% each, while Nasdaq futures are higher by about 0.70%.

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