Wall St drops as strong inflation data fuels rate hike bets

Wall Street's major averages fell on Wednesday after stronger-than-expected inflation data stoked fears of tighter monetary policy to combat a possibly longer period of inflation.

The Labor Department's data showed US consumer prices increased by the most in nearly 12 years in April as booming demand amid a reopening economy pushed against supply constraints. Excluding the volatile food and energy components, it soared 0.9%, the largest gain since April 1982.

US money markets moved fully to price in a 25 basis point interest rate hike by December 2022 after the data.

"There is uncertainty over how long inflation is going to exist within the current economic recovery because we can see increases in housing prices, commodities around the world and increase in demand for goods and services," Brian Vendig, president, MJP Wealth Advisors in Westport, Connecticut.

"The uncertainty over the path of rates and inflation is making investors reconsider their portfolios, especially in technology stocks and others that had done really well last year."

Rising commodity prices and signs of labor shortage have fueled worries over rising prices, triggering a selloff that sent the S&P 500 nearly 3% below its record closing high on Friday, even as the Fed reassured that any price pressure would be transient.

At 9:57 a.m. ET, the Dow Jones Industrial Average was down 195.17 points, or 0.57%, at 34,073.99, the S&P 500 was down 30.58 points, or 0.74%, at 4,121.52. The Nasdaq Composite was down 155.20 points, or 1.16%, at 13,234.23.

Bank stocks, which tend to outperform in a rising interest rate environment, gained 1.1%. The energy sector also added 1.4% as oil prices firmed about 1%.

Nine of the 11 major S&P sectors were lower with technology , consumer discretionary and communication services leading losses.

Among mega-caps, Facebook Inc, Amazon.com Inc , Apple, Google-parent Alphabet Inc and Microsoft Corp fell between 0.6% and 1.2% as investors pulled out of the names on worries that higher US rates could weigh on their lofty valuations.

Electronic Arts Inc rose 1.9% as it forecast annual adjusted revenue above market expectation, betting that demand for its titles like "FIFA 21" and "Apex Legends" would stay strong.

Bumble Inc slipped 1% ahead of its first-quarter results due after market close.

Declining issues outnumbered advancers for a 2.66-to-1 ratio on the NYSE and for a 1.93-to-1 ratio on the Nasdaq.

The S&P index recorded three new 52-week highs and no new low, while the Nasdaq recorded 19 new highs and 35 new lows.