Wall St ends sharply lower as hot inflation sparks sell-off

Yesterday’s fence sitting turned into outright panic today when the CPI and PPI numbers nudged above expectations showing increasing inflation and triggering a big selloff from squelched hopes of sooner rate cuts. Even though Fed governors have been warning for a couple weeks now that cuts would be later and the market was being premature, it wasn’t until today’s inflation gauges that it was finally believed. March of course has been off the table for some time but much of the recent rallies were predicated on hopes that the first cut would come in May.  

Today that was dashed, the odds now at a mere 36%, vs 95% last month and 58% just yesterday.  Bets are now on June with odds at 74%. The big tech megacaps all fell as well as the more traditional Dow sectors of real estate, consumer discretionary and utilities.  The good news is that all the indexes were down quite a lot more (the Dow almost 800) just before 3:00, then all three started a rebound. Perhaps it was at 3:00 p.m. that investors decided the markets were oversold. Perhaps this suggests a rebound for tomorrow. Stay tuned. See inflation gauge chart below. Volume was predictably above average at 12.9 billion. 

Wall St ends sharply lower as hot inflation sparks sell-off

By Johann M Cherian, Ankika Biswas and Carolina Mandl

Tue February 13, 2024 4:32 PM

DJ: 38,797.38  +125.69       NAS: 15,942.55  -48.12         S&P: 5,021.84  -4.77        2/12

DJ: 38,272.75  -524.63        NAS: 15,655.60  -286.95       S&P: 4,953.17  -68.67      2/13

Feb 13 (Reuters) - Wall Street's main indexes tumbled on Tuesday after a higher-than-expected consumer inflation reading pushed back market expectations of imminent interest rate cuts, driving U.S. Treasury yields higher.  The Dow Jones Industrial Average posted its biggest one-day percentage drop in nearly 11 months, after a Labor Department report showed U.S. consumer prices increased above forecasts in January amid a surge in the cost of shelter. 

    Inflation gauges

 

"Equities are in retreat mode following a still inflationary CPI report," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. "The higher for longer inflation is a setback for the Federal Reserve."  Markets have rallied this year on bets that the Fed would start trimming rates in May. The S&P 500 (.SPX), opens new tab closed above 5,000 for the first time on Friday. The Dow (.DJI), opens new tab is also trading near a record-high level, and on Monday the Nasdaq (.IXIC), opens new tab briefly surpassed its record closing high from November 2021.

After the release of the inflation data, bets by traders for a rate reduction in May of at least 25 basis points dropped to 36.1%, from about 58% before the data, while expectations for June stood at 74.3%, the CME FedWatch tool showed.

Rate-sensitive megacaps like Microsoft (MSFT.O), opens new tab, Alphabet (GOOGL.O), opens new tab, Amazon.com (AMZN.O), opens new tab and Meta Platforms (META.O), opens new tab fell between 1.6% and 2.2%, as yields on U.S. Treasury notes across the board spiked to two-month highs.  Most chip stocks such as Micron Technology (MU.O), opens new tab, Qualcomm (QCOM.O), opens new tab and Broadcom (AVGO.O), opens new tab also dropped, sending the Philadelphia SE Semiconductor index (.SOX), opens new tab down 2%.

Real estate (.SPLRCR), opens new tab, consumer discretionary (.SPLRCD), opens new tab and utilities (.SPLRCU), opens new tab led losses among the 11 major S&P 500 sector indexes, with real estate falling to a low of more than two months.  The small-cap Russell 2000 index (.RUT), opens new tab also fell 4.3%, the biggest one-day drop since June 16, 2022.

"Many Federal Reserve governors have come out in the last couple of weeks and given various indications that the cuts expected by the market in the first half of the year may have been premature. Now the CPI data are certainly reaffirming that picture," said Bob Elliott, chief investment officer at Unlimited Funds.  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 (.VIX), opens new tab, a market fear gauge, hit its highest level since November.

The S&P 500 (.SPX), opens new tab lost 68.14 points, or 1.37%, to end at 4,953.70 points, while the Nasdaq Composite (.IXIC), opens new tab lost 282.64 points, or 1.79%, to 15,659.91. The Dow Jones Industrial Average (.DJI), opens new tab fell 522.05 points, or 1.36%, to 38,275.33.  It marked Dow's biggest one-day percentage loss since March 22, 2023.

Among top movers, JetBlue Airways (JBLU.O), opens new tab soared 21.6% after activist investor Carl Icahn reported a 9.91% stake, adding that the carrier's stock is "undervalued."  Arista Networks (ANET.N), opens new tab shares fell 5.5% after the cloud solutions provider forecast current-quarter adjusted gross margin below expectations, while Marriott International (MAR.O), opens new tab lost ground after the hotel operator forecast annual profit below Street expectations.  Shares of software firm Cadence Design Systems (CDNS.O), opens new tab dropped 4% following a bleak quarterly sales forecast, while toymaker Hasbro (HAS.O), opens new tab lost after a steeper-than-expected drop in holiday-quarter sales and profit.  Tripadvisor (TRIP.O), opens new tab stock jumped 13.8% as the online travel agency formed a special committee to evaluate deal proposals.

Declining issues outnumbered advancers by a 10-to-1 ratio on the NYSE and a 4.9-to-1 ratio on the Nasdaq. 

On U.S. exchanges 12.9 billion shares changed hands compared with the 11.71 billion moving average for the last 20 sessions.