Stocks Fall As Inflation Worries Persist

3:16 pm Friday, October 14th, 2022

The stock market struggled today after opening to modest gains. The market reversed course roughly around the same time that UK Prime Minister Truss said in a press conference that the UK will keep its planned corporate tax rate increase in effect and that the UK will deliver a medium-term fiscal plan on October 31. In other words, the “mini-budget” isn’t being scrapped altogether.

The 10-yr gilt yield, which fell to 4.07% overnight on speculation that Finance Minister Kwarteng might get fired (he was) and that Prime Minister Truss might scuttle her tax cut plan, is up 19 basis points to 4.38%. The U.S Dollar Index is up 0.8% following the news with GBP/USD -1.3% to 1.1186.

The outsized moves in the gilt and currency markets come as the Bank of England ends its emergency liquidity support for the gilt market today, leaving participants to wonder what could come next week.

In addition, the stock market is under more pressure today from rising inflation expectations, as seen in the preliminary October University of Michigan Index of Consumer Sentiment, and worries that it got carried away with yesterday’s rally following an otherwise disappointing CPI report. Notably, the 10-yr Treasury note yield has climbed back above 4.00% (currently 4.02%), which is acting as another headwind for stocks.

All 11 S&P 500 sectors trade in negative territory with materials (-2.7%) showing the steepest loss. Meanwhile, health care (-0.6%) and financials (-0.8%) exhibit the slimmest losses.

The health care sector is getting a boost from Dow component UnitedHealth (UNH) after the company reported favorable quarterly results. Losses for the financials sector are less pronounced thanks to gains in JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC), which reported better-than-expected earnings results before today’s open.

The advance-decline line shows declining issues outpacing advancing issues by a greater than 3-to-1 margin at the NYSE and greater than 2-to-1 margin at the Nasdaq.