Economy

Wall St falls as hot inflation data dampens early rate-cut hopes


Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 12, 2024. REUTERS/Brendan McDermid

 

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By Johann M Cherian and Ankika Biswas

(Reuters) – Wall Street’s main indexes slid on Tuesday, hitting one-week lows, after a hotter-than-expected consumer inflation reading drove U.S. Treasury yields higher, pushing back market speculations for imminent interest rate cuts.

A Labor Department report showed U.S. consumer prices increased more than expected in January amid rises in the costs of shelter and healthcare.

Rate-sensitive megacaps like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon.com (NASDAQ:AMZN) and Meta Platforms (O:META) lost between 0.7% and 1.6%, as yields on U.S. Treasury notes across the board spiked to two-month highs. [US/]

Most chip stocks such as Micron Technology (NASDAQ:MU), Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:AVGO) dropped between 1.6% and 3.3%, sending the Philadelphia SE Semiconductor index down 1.1%.

Real estate and consumer discretionary led losses among the 11 major S&P 500 sector indexes, with real estate falling to an over two-month low.

The small-caps Russell 2000 index also shed 2.7%, on track for its worst day in nearly a year.

Trader bets for an at least 25-basis-point rate reduction in May dropped to 38.7%, from about 58% before the data, while expectations for June stood at 78%, the CME FedWatch tool showed.

“We’ve now gotten multiple upside surprises in inflation that’s come from wages, but markets has dismissed that and clung to this idea that the Fed is going to still cut rates,” said Lara Rhame, chief U.S. economist at FS Investments.

“Today, market sentiment is getting a reality check and you just cannot escape the fact that the Fed may have to be more cautious.”

The latest data comes on the heels of a modest revision to inflation in the last quarter of 2023 that left investors briefly relieved on the trajectory of inflation.

The Cboe volatility index, a market fear gauge, hit an over two-week high.

At 11:24 a.m. ET, the Dow Jones Industrial Average was down 405.89 points, or 1.05%, at 38,391.49, the S&P 500 was down 52.30 points, or 1.04%, at 4,969.54, and the Nasdaq Composite was down 189.84 points, or 1.19%, at 15,752.71.

Wall Street has been on a rally, with the benchmark S&P 500 gaining in 14 out of the past 15 weeks, the first time since March 1972. The Dow is also trading at a record high level, and on Monday the Nasdaq briefly surpassed its record closing high from November 2021.

Among top movers, JetBlue Airways (NASDAQ:JBLU) jumped 15% after activist investor Carl Icahn reported a 9.91% stake, adding that the carrier’s stock is ‘undervalued’.

Arista Networks (NYSE:ANET) shed 4.3% after the cloud solutions provider forecast current-quarter adjusted gross margin below expectations, while Marriott International (NASDAQ:MAR) lost 5.8% after the hotel operator forecast annual profit below Street expectations.

Software firm Cadence Design (NASDAQ:CDNS) Systems dropped 3.8% following a bleak quarterly sales forecast, while toymaker Hasbro (NASDAQ:HAS) lost 6.5% after a steeper-than-expected drop in holiday-quarter sales and profit.

Tripadvisor jumped 14.3% as the online travel agency formed a special committee to evaluate proposals that may result in a deal.

Declining issues outnumbered advancers for a 9.63-to-1 ratio on the NYSE and a 4.34-to-1 ratio on the Nasdaq.

The S&P index recorded 15 new 52-week highs and six new lows, while the Nasdaq recorded 27 new highs and 68 new lows.

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