Stocks sink as inflation remains red hot

By CNN Business

Updated 6:28 p.m. ET, July 13, 2022
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11:53 a.m. ET, July 13, 2022

Bank of America predicts US recession this year

From CNN Business' Matt Egan

The American economy is slowing more rapidly than feared because of high inflation. A recession is likely later this year, Bank of America warned on Wednesday.

This marks the first time Bank of America is outright forecasting a downturn since the pandemic erupted in early 2020. A growing number of major banks are predicting a recession this year or next, although others argue the US economy can still experience a “soft landing.”

“Momentum in the domestic economy clearly appears to be slowing. The inflation tax is taking out the ability of households to spend on discretionary items at a fast clip,” Bank of America economist Michael Gapen told CNN in a phone interview.

The Bank of America recession call was made prior to Wednesday’s worse-than-feared inflation report. Gapen said the consumer price index, which spiked by the most since November 1981, gives him a “little more” confidence that a recession will happen because it shows how broad the inflation problem is.

“You can’t say this is just an energy story,” he said.

11:26 a.m. ET, July 13, 2022

Markets recover slightly in late-morning trading

CNN Business' Nicole Goodkind

Traders work on the floor of the New York Stock Exchange during morning trading on July 13 in New York City. 
Traders work on the floor of the New York Stock Exchange during morning trading on July 13 in New York City.  (Michael M. Santiago/Getty Images)

US stocks took a hit this morning after a key inflation reading showed that prices continued to surge in June.

The data added to investors' fears that the Federal Reserve will get more aggressive in its fight to tame inflation.

The market is currently pricing in a 44% probability that the Federal Reserve will increase interest rates by 1% later this month. That would be the highest hike in modern history.

Still, stocks bounced back as they approached midday:

  • The Dow lost 141 points, or 0.4%, narrowing its early-morning loss of more than 300 points.
  • The S&P 500 was down 0.2%.
  • The Nasdaq Composite added 0.2%.
10:15 a.m. ET, July 13, 2022

Treasury yields jump on inflation report

CNN Business' Nicole Goodkind

US Treasury yields jumped following the release of Wednesday's hotter-than-expected inflation report.

Yields move in the opposite direction to prices, and today's pop comes as investors fear rising inflation will further hurt consumer growth -- and that the Federal Reserve will pursue more aggressive rate hikes, which could slow the economy.

"The bottom line is that this report keeps the Fed on its tightening path. ... Today's report is also consistent with our view that the 'inflation tax' will weigh on consumer spending, driving the economy into a mild recession," wrote analysts at Bank of America.

Overall, there's "not a like to like," they said.

The market is currently pricing in a 57% probability of a 1% Fed hike later this month.

  • The 10-year Treasury grew by 7 basis points to 3.03% on Wednesday morning.
  • The 2-year Treasury grew by 13 basis points to 3.2%.
  • The 30-year Treasury grew by 12 basis points to 3.16%
9:51 a.m. ET, July 13, 2022

4 key takeaways from today's red-hot inflation report

From CNN Business' David Goldman

A shopper walks through a grocery store in Washington, DC, on June 14. 
A shopper walks through a grocery store in Washington, DC, on June 14.  (Stefani Reynolds/AFP/Getty Images)

1. Inflation isn't going away anytime soon

"If the Fed was hoping to find signs that inflation is beginning to abate, they likely didn't find it in today's CPI report," said Jason Pride, chief investment officer of private wealth at Glenmede.

2. Inflation is hot across the board

Prices rose across the board -- inflation is not being driven higher by a few outliers.

3. Gas is falling, but that may not help

"The continued strong gains in the cost of housing and apparel ... must temper suggestions that hope for lower gasoline and energy bills will resolve inflation concerns in the near term," noted PNC Senior Economist Kurt Rankin.

4. The Fed is probably going to hike rates into a recession

"A faster pace of rate hikes ... increases the odds that a soft landing gives way to recession in the U.S.," Pride said. 
9:40 a.m. ET, July 13, 2022

Dow opens down 300 points on inflation report

CNN Business' Nicole Goodkind

US stocks slid on Wednesday morning after June inflation data came in hot with the year-over-year increase of 9.1% in the Consumer Price Index, the highest annual rise since November 1981.

"This was an eye-popping number. There's no sugar-coating 9% inflation," said Brian Jacobsen, senior investment strategist for Allspring Global Investments.

Investors are worried that the new data could incentivize the Federal Reserve to hike interest rates more than expected during their meeting later this month.

"Inflation is becoming entrenched and this is exactly what investors and central bankers worry about the most," said Jeffrey Roach, chief economist at LPL Financial. "The Fed will likely hike rates by 75 basis points later this month, especially since the job market is strong enough to support the front-loading of rate hikes."

The Dow lost 210 points, or 0.7%, on Wednesday.

The S&P 500 dropped by 0.9%.

The Nasdaq Composite fell 1.2%.  

9:13 a.m. ET, July 13, 2022

High prices hurt Delta earnings

From CNN Business' Chris Isidore

Delta Air Lines earned its biggest profit since the start of the pandemic in its latest quarter, but higher fuel costs, labor issues and service problems caused it to earn far less than investors expected.

The company reported Wednesday that it earned $735 million in the second quarter. Analysts surveyed by Refinitiv had expected earnings of $1.1 billion for the company.

Average fuel costs for Delta rose to $3.82 a gallon, up 37% from the first quarter and up 82% from the final quarter of 2021. Delta had previously told investors it expected to pay between $3.20 and $3.35 in the second quarter. It now expects to pay slightly less in the third quarter, with fuel costing between $3.45 and $3.60 a gallon.

Read more

8:56 a.m. ET, July 13, 2022

Don't panic -- yet

From CNN Business' Julia Horowitz

Worried about today's inflation report? Well, here's a dose of Zen for you...

Concerns about whether the global economy could tip into a recession have dimmed expectations for fuel demand, helping relieve pressure on gasoline prices in the United States this month. The average price for a gallon of regular gas on Wednesday was $4.63, compared to $4.78 a week ago and $5.01 one month ago.

That wasn't reflected in the June data, given that gasoline prices were at a record high when the Bureau of Labor Statistics crunched the CPI numbers. But it does mean July will probably look better — and markets like to look ahead.

And a survey from the Federal Reserve Bank of New York published this week showed that while consumer inflation expectations for the next year marked a new high in June, expectations for the medium and long term declined.

This indicates that American consumers still have faith that the Fed can get the inflation situation under control by hiking interest rates and ending crisis-era bond purchases. The economy might slow, but price stability will ultimately be restored, as will the much-maligned credibility of central banks.

9:10 a.m. ET, July 13, 2022

The Fed is on notice

From CNN Business' David Goldman

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., on June 14.
The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., on June 14. (Sarah Silbiger/Reuters)

You can bet the Federal Reserve is watching today's inflation report very, very closely.

The stock market expects the Fed to raise its benchmark interest rate by another three-quarters of a percentage point at the conclusion of its policy meeting on July 27. More than 58% of investors expect the Fed to hike rates by the same amount as it hiked in June, according to CME's FedWatch tool.

But after today's higher-than-expected inflation report, a growing number of investors think the Fed may raise rates by even more: a full percentage point. Nearly 42% of investors believe that the Fed will hike rates by that amount.

The Federal Reserve pays particular attention to core inflation data when assessing future inflationary trends, and the latest numbers likely give the central bank a green light to continue with its aggressive series of rate hikes to cool off the economy and bring down higher prices.

8:50 a.m. ET, July 13, 2022

Stocks stumble

From CNN Business' David Goldman

People walk past the New York Stock Exchange on Wall Street on July 12.
People walk past the New York Stock Exchange on Wall Street on July 12. (Angela Weiss/AFP/Getty Images)

US stock futures tumbled after a key inflation reading showed prices continued to surge in June.

  • Dow futures tumbled 400 points, or 1.1%
  • S&P 500 futures were down 1%.
  • Nasdaq futures fell 2.2%.
  • US Oil fell 1.1% below $95 a barrel, as American gas prices continued their slow decline to $4.63 a gallon on average, nationwide.