Before the Bell: Suddenly, it is all about inflation, following years in which pricing concerns had been largely absent. Several things are sparking the concerns. First, last month's Producer Price Index shot up. Then, the ISM reported that the pricing component of its manufacturing survey showed another jump in February, as did the pricing gauge on its companion non-manufacturing index. Also, oil prices continue to push up and Treasury yields are ascending rapidly--nearly quadrupling from their 2020 lows. All of this is rattling the stock market, especially the NASDAQ.

Then, this morning, the Labor Department said that non-farm payrolls had risen by a sharp 379, 000 in February. An increase of 225,000 had been the forecast. Also, private-sector jobs soared by 465,000. Meantime, the jobless rate eased to 6.2% and the labor-force participation rate held fairly steady at 61.4%. On the surface, the report was very strong. However, most of the jobs gained (355,000) were in leisure and hospitality. Goods producing jobs actually fell, with construction shedding 61,000 jobs in the month. As for wages, they rose modestly, adding $0.07, climbing to $30.01 an hour. Regarding Wall Street's reaction, it was fairly muted, with the Dow futures climbing, but the NASDAQ pushing somewhat lower on some pricing fears.

Adding further to Wall Street's latest concerns were comments from Federal Reserve Chair Jerome Powell on the subject of inflation. Essentially, the Fed Chair opined that inflation would likely pick up in the coming months, but the increase probably would be temporary and not enough for the Fed to alter its low-interest-rate policies. As to the Treasury market, his comments did little to calm nerves, as he also said that as the economy reopens further
 and more vaccines are put into arms, prices will rise. Thus, the yield on the 10-year Treasury jumped to 1.55%.  

As for the stock market, it was another turbulent day. And this time, the Dow Jones Industrial Average joined the NASDAQ in a market rout. Interestingly, the selling did not begin until the early afternoon on the blue chips, with the Dow in positive territory throughout the morning. But once the unloading started, it did not really stop. In all, the Dow plunged to a better than 700-point loss at one stage, before rebounding to close off 345 points. It was a similar story for the tech-heavy NASDAQ, which was ahead early, but sold off in the afternoon to fall 274 points.

The big selloff in tech, which took in Tesla (TSLA), Amazon (AMZN), and NVIDIA (NVDA) to name just a few issues, reflected the Street's sudden unease with high growth stocks. The slide in the NASDAQ, meantime, put this composite into correction territory (i.e., a drop of more than 10% from its early February high) and into the minus column for the year to date. The Dow stocks, which are more economically sensitive, stand to benefit from a stronger economy, even if it entails somewhat higher inflation. 

Finally, we would take special note next week of scheduled reports on consumer and producer prices for clues as to how serious the inflation story is. – Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.