Stocks fell sharply on Thursday ahead of a key inflation report as investors worried about the state of the U.S. economy.
The Dow Jones Industrial Average fell 606 points, or 1.8%. The S&P 500 dipped 2.2%, and the Nasdaq Composite shed 2.6%. The market was modestly lower for most of the session before selling gained steam in the final hour.
Casino stocks were some of the worst performers in the S&P 500, with Las Vegas Sands falling 4.5% and Caesars Entertainment sliding 2.9%. Chinese tech stocks reversed recent gains and dragged on the Nasdaq, with Pinduoduo sinking more than 10.3%.
Some major tech stocks also struggled, with Meta Platforms sliding nearly 4% and Amazon dropping 2.3%. Boeing was the worst performer in the Dow, falling more than 3%.
The slide for stocks comes ahead of the May consumer price index report on Friday. Investors are looking to see if inflation has peaked or if the Federal Reserve will need to be even more aggressive to tamp down price increases.
“The fact that people have literally been talking about this report for the last several days illustrates how much of an issue inflation has become for the market over the last six months since Fed Chair Powell first started to take a more hawkish approach to inflation,” Bespoke Investment Group said in a note to clients.
Investors have been assessing the health of the U.S. economy in recent weeks, as the Fed has started hiking rates in an attempt to cool inflation without tipping the economy into recession.
Higher energy prices and continued supply chain disruptions have kept inflation persistently high in recent months, while some economic data has shown slowing growth in recent weeks.
“There’s a lot of headfakes going on. And unfortunately we’re not going to get a lot of clean looks at the economy, whether the U.S. economy or certainly the global economy, for quite some time because there’s just so many things that are hard to decipher,” said Michael Skordeles, senior U.S. macro strategist at Truist.
Oil prices dipped slightly on Thursday, but U.S. West Texas Intermediate crude still held above $120 per barrel. Initial jobless claims rose to 229,000 last week, worse than the 210,000 expected.
The S&P 500 is now down about 15% from its record high, but has traded sideways in recent weeks after bouncing off its recent low in May. The index has shed about 1% this week.
Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said he thinks stocks will finish the year higher from here but could be in for a bumpy ride over the summer, with that May low a key area to watch.
“Maybe we retest that, but I don’t see a substantial decline below that because it is my belief that, despite higher oil prices and higher food prices … the economy will be able to withstand the shock that we’re facing now,” Slimmon said.
Stocks appeared to move opposite bond yields on Thursday, which were volatile after an update from the European Central Bank. The ECB confirmed its plan to hike interest rates in July and possibly again in September. The ECB also raised its inflation projection for 2022 to 6.8%, up from 5.1% previously, and lowered its growth outlook.
Elsewhere, shares of Target were little changed after the company announced a dividend hike. The payout raise comes after a disappointing first quarter and a profit warning for the second quarter from the retail giant.
