US stocks tumble on inflation worries, S&P 500 down 2.5%

The Dow Jones Industrial Average fell 1.8 per cent to finish at 31,402.01. PHOTO: REUTERS

NEW YORK (AFP) - Wall Street stocks were sharply lower following an ugly session on Thursday (Feb 25) as US Treasury yields hit a new 52-week high amid ongoing investor fears about inflation.

The Dow Jones Industrial Average fell 1.8 per cent to finish at 31,402.01, retreating from an all-time high set on Wednesday.

The broad-based S&P 500 fell 2.5 per cent to end at 3,829.24, while the tech-rich Nasdaq Composite Index again was the biggest loser, sinking 3.5 per cent to 13,119.43.

Stocks were under pressure the entire session as investors monitored the 10-year Treasury, which have been rising sharply in recent days and got as high as 1.61 per cent.

Investors fear a spike in inflation will prompt the Federal Reserve to shift away from easy-money policies and quickly raise interest rates - despite central bank assurances to the contrary.

Analysts point to a potential overheating of the US economy in the second half of 2021 with coronavirus vaccinations allowing greater economic activity and a massive new government aid package expected soon.

Fed officials have said repeatedly said that inflation is under control and they do not anticipate shifting course.

But investors seem unconvinced.

Chris Low, chief economist of FHN Financial, said inflation was neither worrisome nor a bad sign about the economy.

"Rising real yields reflect expectations the Fed will have to raise rates sooner to keep inflation contained," Low said in an analysis.

"Hence, it is no longer fear of inflation driving yields, it is fear of growth."

And he said "yields have not risen so much as to suggest overheating," but to have reached levels consistent with a likely recovery.

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