Inflation Fears Send Stocks Lower As Investors Brace For Fed Rate Hike Next Week

The 2022 stock market weakness continued this week, with major indexes trading lower on another round of discouraging inflation data.

What Happened: On Friday morning, the SPDR S&P 500 ETF Trust SPY dropped 2.6% after the Labor Department reported the consumer price index rose 8.6% in May, the highest U.S. inflation reading since 1981. Economists were expecting just 8.3% CPI growth in May, and the surprise uptick undermined investor hopes that CPI inflation had peaked at 8.5% in March.

On Wednesday, Securities and Exchange Commission Chairman Gary Gensler outlined some potential changes the SEC is considering to help protect retail stock traders and ensure they get the best possible prices on their order execution. Gensler discussed proposals for "open and transparent auctions" to fill retail orders, a potential replacement for the controversial practice of payment for order flow, or PFOF.

On Tuesday, Democratic Senator Kirsten Gillibrand and Republican Senator Cynthia Lummis unveiled a new bipartisan bill to regulate the cryptocurrency market that would treat most digital assets as commodities, a classification that would exempt the crypto market from SEC oversight and give crypto investors favorable tax treatment.

In his Wednesday speech, Gensler said most cryptocurrencies are like securities, while Bitcoin BTC/USD and a handful of others function more like commodities.

Less than a month after discount retailer Target Corporation TGT disappointed the market with a big first-quarter earnings miss, the company warned investors on Tuesday that its operating margins will be lower than anticipated in the second quarter as Target cancels orders and cuts prices on excess inventory. Target shares dropped another 6% this week and are now down 34.8% year-to-date.

Fine China: Shares of Chinese online brokerage Futu Holdings Ltd FUTU gained more than 21% this week as investors cheered both the company's first-quarter earnings beat and media reports that the Chinese government may be easing its regulatory crackdown on tech stocks.

In the week ahead, investors will get more quarterly earnings reports from Oracle Corporation ORCL on Monday and Commercial Metals Company CMC, Adobe Inc ADBE and Kroger Co KR on Thursday.

S&P 500 companies have reported 9.2% earnings growth in the first quarter, the lowest earnings growth rate since the fourth quarter of 2020, according to FactSet.

Economic Numbers: Following the discouraging CPI reading, Wall Street will get key economic updates on Wednesday when the Census Bureau releases its May U.S. Retail Sales report and the Federal Reserve releases its latest interest rate decision, economic projections and accompanying commentary.