By Yasin Ebrahim
Investing.com -- The Dow on Friday suffered its biggest weekly selloff as an unexpected step-up in the pace of inflation sent Treasury yields surging and put the screws on growth sectors of the economy amid bets for more aggressive Federal Reserve rate hikes.
The Dow Jones Industrial Average slipped 2.7%, or 880 points, the Nasdaq was down 3.5%, the S&P 500 fell 2.9%,
The consumer price index rose 1% in May, above expectations for a 0.7% increase, taking the year-on-year consumer prices through May to 8.6%, its fastest rate since 1981 and above economists' forecasts of 8.3%.
In a worrying signal for the Fed, the factors pushing inflation above fresh 40-year highs are broadening beyond just supply-chain issues, with shelter, food and gas leading the gains.
“The Federal Reserve is committed to reducing demand to meet a supply-constrained world. This inflation reading will strengthen that resolve,” Yelena Maleyev, economist at Grant Thornton said in a note.
Treasury yields jumped on bets that the Fed will be forced to deliver 50 basis points at each of the next three meetings, putting growth sectors of the market such as tech, which are vulnerable to rising rates, on the backfoot.
Apple (NASDAQ:AAPL) was down more than 3%, while Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT), fell 4% leading the losses in big tech.
Consumer discretionary also played a big role in selloff, led by travel and leisure stocks on fears that red-hot inflation will put a further squeeze on consumer spending.
Caesars Entertainment (NASDAQ:CZR), Royal Caribbean (NYSE:RCL), MGM Resorts (NYSE:MGM), and Booking (NASDAQ:BKNG) were among the biggest losers in the sector.
“The pace of consumer spending is going to slow, we've already seen that in the choices they are making,” Chief Strategist at Spouting Rock Asset Management Rhys Williams told Investing.com in an interview on Friday.
“There's been a few anecdotes that even on services like cruises, demand is down for next year,” Williams added. “People are a little bit shocked by how much things cost.”
Financials were driven lower by banks as the Treasury yield curve continued to flatten on bets of a potential recession ahead.
Signature Bank (NASDAQ:SBNY), Capital One Financial (NYSE:COF), and Synchrony Financial (NYSE:SYF) slumped with the latter, which is sensitive to cryptocurrency, also suffering added pressure from a rout in crypto.
Bitcoin fell more than 2%, while Ethereum fell more than 6% to a 52-week low.