Investors Dump Stock ETFs Ahead Of CPI Data

The S&P 500 is down 16% from its highs, not far from the bear market threshold.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

Panicky investors continued to dump stocks today as intense concerns about inflation and interest rates weighed on the markets. Selling was led by tech stocks, though the broader S&P 500 was far from immune from the onslaught.  

The Vanguard Information Technology ETF (VGT) fell as much as 4.2%, the Invesco QQQ Trust (QQQ) sagged as much as 3.6% and the SPDR S&P 500 ETF Trust (SPY) lost 2.9%.  

With the losses, the tech-focused VGT and QQQ are down close to 25% from their January highs, while SPY is down by 16%. A decline of 20% or more in the market is considered the start of a bear market by many investors. 

Wednesday’s release of consumer price data for April may play a big role in determining whether the decline in the S&P 500 turns into something worse. Economists expect that growth in the headline CPI decelerated from 8.5% year over year in March to 8.1% in April. The core CPI, which strips out food and energy prices, is expected to cool down from 6.5% to 6%. 

If the numbers come out as expected or better, it may help support the narrative that inflation has peaked, giving at least some relief to investors. Even if that’s the case, inflation has a long way to go before it gets back to the Fed’s 2% target. 

Panic Grows  

The Nasdaq-100 Volatility Index today touched its highest level since October 2020, underscoring how panicked investors are about elevated inflation and surging interest rates.  

Last week’s Fed meeting in which the central bank lifted interest rates an expected 50 basis points did little to soothe investors who worry that the central bank may be behind the curve in its fight against inflation.  

The 10-year Treasury bond yield today briefly topped 3.2% for the first time since November 2018. 

High interest rates make bonds more appealing relative to stocks—particularly high growth and high valuation stocks—like those in the technology sector. 

Stocks in sectors where growth is slower and where profits are abundant today relative to the future are seen as more insulated from higher rates. The Consumer Staples Select Sector SPDR Fund (XLP) is up 0.5% this year, while the Utilities Select Sector SPDR Fund (XLU) is higher by 0.8%. 

Both sectors are seen as safe havens against an economic downturn as well. 

The top-performing sector this year is energy, with a 40% gain for the Energy Select Sector SPDR Fund (XLE). While not typically considered a safe haven like consumer staples and utilities, in an inflationary environment, energy tends to do well. Add geopolitical factors into the mix and you have a recipe for strong performance in XLE and other energy ETFs.  

 

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Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.