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Stocks fell slightly on Thursday, with the S&P 500 heading for its sixth consecutive weekly decline and inching closer to bear market territory.
Trading was turbulent, and after recovering from a sharp fall the S&P 500 ended just 0.1 percent lower. The index is down 4.7 percent for the week, on track for its biggest weekly decline since at least January. This would also be a sixth weekly drop in a row, Wall Street’s longest stretch of losses since 2011.
The Nasdaq composite was also volatile, and ended the day little changed.
Though Wall Street’s sell-off this year — which comes after the S&P 500 rallied 90 percent in the previous three years — was triggered by concerns about rising inflation and interest rates, and how the combination could hurt the economy, it has taken on a life of its own as investors see every new data point as a cause for concern.
The most recent selling has also hit cryptocurrencies like Bitcoin, and metals and other raw materials like copper and oil, losses that reflect weakening sentiment across financial markets as well as concern about the global economy.
The drop has left the S&P 500 on the edge of a bear market, Wall Street’s term for a drop of 20 percent or more from its last peak, a label meant to highlight just how dark the mood among investors has become. Through Thursday, the index was down about 18 percent from its Jan. 3 peak. The Nasdaq Composite is well into bear market territory, down 29 percent from its November high.
Understand Inflation and How It Impacts You
The drop this week has come along with fresh updates on the pace of inflation in the United States. The Consumer Price Index rose 8.3 percent in the year through April from a year earlier, the government said on Wednesday, while a measure of prices paid to producers rose 11 percent. While both measures showed that inflation cooled slightly from the month before, they remain uncomfortably high.
For stock investors, the inflation data feeds directly into views on how aggressively the Federal Reserve will raise interest rates: Higher borrowing costs will slow growth and also dampen interest in risky investments.
Analysts say the dour mood among stock investors isn’t likely to change until they get a handle on when the Fed will slow the rate increases. That won’t be clear until it’s certain that inflation has peaked. The central bank raised its benchmark rate half a percentage point this month and is expected to do so again when it meets in June and July.
“The Fed will want to see clearer evidence that inflation is cooling and higher interest rates are slowing demand before they start thinking about the endpoint of the current rate hike cycle,” Bill Adams, the chief economist for Comerica Bank, wrote in a note to clients on Thursday.
After the close of trading on Thursday, Jerome H. Powell, the Fed chair, acknowledged that the path ahead could be a painful one.
“The process of getting inflation down to 2 percent will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched,” Mr. Powell said, speaking during an interview with Marketplace on Thursday.
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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The prospects of higher interest rates have driven technology stocks sharply lower this year. Among the largest tech companies, Apple fell 2.7 percent on Thursday, while Microsoft fell 2 percent.
In Europe, stock indexes ended lower. The Stoxx Europe 600 fell 0.8 percent. Asian markets closed mostly lower.
Oil prices fell on Thursday, with West Texas Intermediate, the U.S. benchmark, down 0.4 percent to $106.13 a barrel. Brent crude, the international standard, settled at $107.45 a barrel.