US stocks sink after inflation surges

US stocks closed lower on Wednesday, marking their second down day following a streak of records.

The Nasdaq Composite, which dropped the most at 1.7%, recorded its worst day since the start of October.

The Dow closed down 0.7%, or 240 points, while the S&P 500 finished 0.8% lower.

While stocks were rattled following the morning’s hotter than expected inflation data, bond yields rose. The 10-year US Treasury bond yielded 1.56% around the time of the closing bell.

So what's faster, a Rivian or a Tesla?

Tesla claims the top end version of its Model S has the record for the fastest time 0 to 60 of any production car – less than 2 seconds.

But while Rivian's trucks can't begin to match that, they can outpace Tesla in one measure – fastest gain in market value.

Rivian shares started their first day of trading Wednesday with a market value of at least $93 billion and perhaps as much as $95 billion once its underwriters purchase all the shares they are entitled to, a virtual certainty. Although shares slipped a bit in later day trading, they were still above the value of General Motors and Ford shares

Rivian is still only worth a fraction of Tesla, which two weeks ago became just the sixth company to ever reach a $1 trillion stock valuation. But it took Telsa – in comparison to Rivian – a long time to reach its lofty heights.

Tesla shares were worth $2.5 billion on the day of its June 2010 IPO. The company raised $266 million with that offering, compared to the nearly $12 billion that Rivian raised in the biggest IPO since Facebook.

Tesla took nearly ten years to hit a $93 billion market value, reaching it for the first time in January 2020. Its remarkable 743% gain last year is what made it the most valuable automaker in the world, worth more than the 12 largest automakers combined.

But both Tesla and Rivian share one thing – investors betting big that the future of cars and trucks will be powered by electric motors, not gasoline or diesel engines.

Tesla shares, which had lost 18% of their value between its record high last week through Tuesday’s close, reversed the recent slide with a 1% gain Wednesday, thanks partly to Rivian's debut exceeding expectations.

Ford shares were down 4%, even though the automaker owns 102 million shares of Rivian, worth nearly $11 billion at the opening price, making it one of the big winners of the IPO.

It's an ugly day on Wall Street as stocks are trading sharply lower. But not all of the market is red. Bond yields are up!

The 10-year US Treasury bond yield is up more than 0.1 percentage points at 1.55%, its highest level since the beginning of the month.

Bonds reacted to this morning's inflation data, which came in far hotter than expected. The bond market tracks inflation expectations, as well as expectations for future interest rates. While the Federal Reserve's reference rate is still near zero, that's expected to change next year.

"It’s not always about the absolute level of rates, it’s about the pace with which that happens, and sharp moves tend to unnerve markets a bit," wrote Michael Reinking, senior market strategist at the New York Stock Exchange, in a note to clients.

Today is all about inflation, because this morning's report was disheartening for anyone who was hoping for a slowdown in price jumps.

"The biggest number in today's inflation story was the median inflation [number]," because it shows that there's a broadening of inflationary pressure that will take some time to peter out again, said Darius Dale, founder and CEO of 42 Macro LLC.

Even so, Dale doesn't believe the current levels of inflation will stick around for long. "That's the easy answer. The harder answer is what's the policy response," he told Alison Kosik on the CNN Business digital live show Markets Now.

The Federal Reserve, for example, tasked with keeping prices stable, could amend its policy in response.

The market is indicating that investors expect the Fed to pull forward its interest rate hikes into the beginning of the second half of 2022, Dale said. But he doesn't believe the Fed will raise rates more than once next year.

Inflation in America is rampant and people are feeling it at the grocery checkout.

"It is significant," Nick Bertram, president of the supermarket chain Giant Company, said of the price increase.

But consumers aren't necessarily trading down. In fact, Bertram said, Giant customers are buying more expensive cuts of meat, which have jumped in price over the past year.

"I think it's because some of the money that was historically spent on eating at restaurants... people have learned to enjoy eating at home," Bertram said on the CNN Business digital live show Markets Now.

"We're doing everything that we can to make sure that the consumer has the product available," he said.

Cryptos are flying off the proverbial shelves this week and Bitcoin and Ethereum, the world's two largest digital currencies, have hit new highs.

Michael Sonnenshein, CEO at Grayscale Investments, wants to offer consumers a new way to invest in Bitcoin: an ETF.

Exchange-traded funds are a common investment product through which investors can put their money behind companies or commodities without investing in the actual thing. Rather, the ETF is a tracker.

Sonnenshein wants to bring investors a Bitcoin spot price ETF. The first Bitcoin futures ETF is seeking the approval of the Securities and Exchange Commission, he pointed out, which suggests that the momentum is on Grayscale's side.

Glenn Hubbard, the former top economic adviser to President George W. Bush, is worried the Federal Reserve is getting caught flat-footed by red-hot inflation.

“The Fed is clearly being too accommodative,” Hubbard, now a professor at Columbia Business School, told CNN on Wednesday.

Consumer prices surged by 6.2% in October from a year before, a significant acceleration from prior months and the biggest jump since November 1990.

Hubbard said headline inflation is “very high” and “even more concerning” is that core inflation, which strips out food and energy, is high as well. That metric rose in October by the most since 1991.

“The question is: When does that get into the public’s consciousness? I think it has already,” said Hubbard, who chaired the Bush administration’s Council of Economic Advisers.

And yet the Fed has only just begun to slow its stimulus program of asset purchases and has continued to keep interest rates at rock-bottom levels.

“It doesn’t add up,” Hubbard said of Fed policy. “You don’t have to pour gasoline on a fire.”

The criticism of the Fed, from a Republican economist no less, comes as President Joe Biden debates whether to reappoint Fed Chairman Jerome Powell, a Republican nominated by former President Donald Trump.

“I don’t think the house is on fire. There is time to make a course correction,” Hubbard said of the inflation situation. “But I’m not sure the Fed is going to make it.”

Wall Street opened in the red on Wednesday, adding onto the losses that major stock indexes incurred in the previous session.

The big economic report of the morning did nothing to lift spirits: A key measure of inflation rose to its highest in more than 30 years, a result far worse than economists' expectations and a sign that the pandemic price hikes are not yet behind us.

• The Dow opened 0.2%, or 67 points, lower.
• The S&P 500 fell 0.4%.
• The Nasdaq Composite opened down 0.9%.

There's no end in sight for higher prices. US consumer price inflation surged higher again in October, the Bureau of Labor Statistics reported Wednesday.

Over the past 12 months, prices climbed 6.2% -- the biggest increase since November 1990.

Stripping out food and energy prices, which tend to be more volatile, the index rose 4.6% over the same period, the biggest jump since August 1991.

The overall price index rose 0.9% in October alone, adjusted for seasonal swings, significantly more than the 0.6% economists had predicted, and overshadowing the somewhat more tepid 0.4% increase from September.

Last month's price jumps came on the back of increases in multiple categories, including energy, shelter, food and cars.

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