Hotter-Than-Expected Inflation Data Contributing To Steep Drop On Wall Street
With hotter-than-expected inflation data leading to renewed concerns about the outlook for interest rates, stocks have moved sharply lower during trading on Wednesday. The major averages have all shown significant moves to the downside, with the Dow falling to its lowest intraday level in well over a month.
Currently, the major averages are off their worst levels of the day but still firmly negative. The Dow is down 428.74 points or 1.1 percent at 38,454.93, the Nasdaq is down 179.01 points or 1.1 percent at 16,127.63 and the S&P 500 is down 52.60 points or 1.0 percent at 5,157.31.
The steep drop on Wall Street comes following the release of a Labor Department report showing U.S. consumer prices advanced by slightly more than expected in the month of March.
The Labor Department said consumer prices climbed by 0.4 percent in March, matching the increase seen in February. Economists had expected consumer prices to rise by 0.3 percent.
Excluding prices for food and energy, core consumer prices still rose by 0.4 percent for the third consecutive month. Core consumer prices were also expected to increase by 0.3 percent.
The report also said the annual rate of consumer price growth accelerated to 3.5 percent in March from 3.2 percent in February. Economists had expected a more modest acceleration to 3.4 percent.
Meanwhile, the annual rate of core consumer price growth came in at 3.8 percent in March, unchanged from February. Core price growth was expected to slow to 3.7 percent.
The data has added to recent worries the Federal Reserve will hold off on lowering interest rates amid ongoing inflation concerns.
Fed officials have repeatedly said they need greater confidence inflation is slowing before they consider cutting rates.
Treasury yields surged in reaction to the report, with the yield on the benchmark ten-year note jumping to its highest levels in almost five months.
Following the release of the data, the chances of a rate cut in June have plunged to just 20.6 percent, according to CME Group’s FedWatch Tool.
“The last mile for inflation down to the Fed target of 12-month core PCE at 2.00% has stalled recently at 2.80%,” said Larry Tentarelli, President and Founder, Blue Chip Daily Trend Report. “That being said, unless inflation breaks out meaningfully to the upside, we do expect a Fed rate cut by the July 2024 meeting.”
“In our view, however, this could be more of a token rate cut, and it is possible that it could be the only rate cut for 2024,” he added. “Incoming inflation data and jobs data will remain as key factors.”
Later in the day, the Fed is due to release the minutes of its latest monetary policy meeting, which may shed additional light on the outlook for interest rates.
Sector News
Interest rate-sensitive commercial real estate stocks have moved sharply lower on the day, resulting in a 3.8 percent nosedive by the Dow Jones U.S. Real Estate Index. The index has plunged to its lowest intraday level in almost two months.
Substantial weakness is also visible among housing stocks, with the Philadelphia Housing Sector Index tumbling by 3.1 percent.
Networking stocks have also shown a significant move to the downside, dragging the NYSE Arca Networking Index down by 2.8 percent.
Telecom, banking and utilities stocks are also seeing considerable weakness, moving lower along with most of the other major sectors.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index fell by 0.5 percent, while Hong Kong’s Hang Seng Index surged by 1.9 percent.
Meanwhile, the major European markets have all moved to the upside on the day. While the French CAC 40 Index is just above the unchanged line, the German DAX Index and the U.K.’s FTSE 100 Index are both up by 0.4 percent.
In the bond market, treasuries have moved sharply lower in reaction to the hotter-than-expected inflation data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 12.7 basis points at 4.493 percent.
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