The Dow Jones Industrial Average hovered in volatile trading Wednesday as investors weighed the improvement in economic data against rising inflation expectations.
The blue-chip Dow was able to make up for a loss of 150 points and was briefly positive, supported by a jump in Verizon and Chevron shares. The average of the last traded 70 points lower. The S&P 500 lost around 0.4%, led by technology and materials. The tech-heavy Nasdaq Composite fell 1% while Apple fell 2.6%.
Dow member Verizon was among the top winners after Warren Buffett’s Berkshire Hathaway announced a significant stake in the telecommunications giant. Shares rose 3.7% after the latest filing revealed that Berkshire bought more than $ 8 billion in shares in the fourth quarter, making Verizon one of the conglomerate’s six largest holdings.
Chevron was up 3.5% when Berkshire also announced a large stake in the energy company last quarter.
The weakness in the broader market was due to retail sales rising 5.3% in January, surpassing a Dow Jones estimate of 1.2%. The rise in consumer spending could further fuel inflation expectations, which have already pushed bond yields higher recently.
Signs of a pickup in price pressure were already evident as the economy recovered from the pandemic-triggered recession with historic fiscal and monetary stimulus. The Labor Department said Wednesday that the producer price index, a measure of the prices businesses get for their goods and services, rose 1.3% in January. This is the biggest jump since the index began in December 2009.
The retail data “fits in perfectly with the current display of strong earnings / growth (and rising inflation) and will continue to push government bond yields higher,” said Adam Crisafulli, founder of Vital Knowledge, in a note.
Government bond yields continued to rise on Wednesday, with the 10-year rate hitting a high of 1.33%, a level last seen in February 2020. The 30-year return remained stable after hitting its highest level in a year at the previous session.
Some on Wall Street believe that higher interest rates could ultimately lead investors to switch from high-flying risk assets to bonds while putting pressure on areas of the market, including technology, that have benefited from the low interest rate environment.
“We’re filling a big void as of March 2020. As long as we stay tidy and shift rates for the right reasons, that’s fine in the short term,” said Gregory Faranello, head of US Interest Rate Trading at AmeriVet Securities. “But the Fed is watching. Should the financial conditions tighten with rising interest rates, the Fed will react. And quickly.”
The 10-year base rate fell to an all-time low of 0.318% in March, while a historic flight to bonds took place in the depths of the coronavirus crisis.
On Wednesday, the Cboe Volatility Index, also known as Wall Street’s top fear indicator, rose 1.6 points above 23. The VIX closed below 20 on Friday as it broke its first significant threshold since February 2020.
Elsewhere in the market, Bitcoin topped $ 51,000 for the first time when its dizzying surge to new record highs continued.
Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.
