Traders work on the floor of the New York Stock Exchange during afternoon trading on April 09, 2024 in New York City.
Michael M. Santiago | Getty Images
Stocks tanked on Wednesday after March inflation data came in hotter than expected, likely pushing off interest rate cuts by the Federal Reserve that investors have been anticipating.
The Dow Jones Industrial Average dropped 332 points, or 0.8%, after recovering from its more than 500-point drop earlier in the session. The S&P 500 and Nasdaq Composite slid 0.8% each.
With the exception of energy, all sectors in the broad market index were red for the day. Real estate fell more than 3%, leading sector losses for the day. The S&P 500 had been treading water in April in anticipation of this inflation report following a roaring start to the year where the benchmark rallied 10% for its best first quarter gain in five years.
The CPI in March rose 0.4% for the month and 3.5% year-over-year, versus estimates of a 0.3% monthly increase and 3.4% year over year, according to economists polled by Dow Jones. Core CPI, which excludes volatile food and energy prices, accelerated 0.4% from the previous month while rising 3.8% from a year ago, compared to estimates for 0.3% and 3.7%, respectively. CPI in April increased at a 3.2% annual pace for all items.
Fed funds futures trading data now suggests just a 20.6% likelihood that the Fed will lower rates at its June meeting, according to the CME FedWatch Tool. Traders are now betting that the first rate cut will likely take place at the central bank’s meeting in September.
The 10-year Treasury yield, a benchmark for mortgage and other loans, soared back above 4.5% as March CPI reaccelerated from the prior month, defying a Federal Reserve hoping for inflation to slow back to its 2% target. The 2-year Treasury yield spiked to nearly 5%.
Bank shares, including JPMorgan Chase and industrial shares like Caterpillar, respectively slipped 0.5% and 0.8% on worries higher rates will start to suffocate the economy. Once red-hot tech stocks Microsoft and Apple also pulled back 1% each.
“As we continue to see multiple reports in a row that are higher-than-expected, it becomes more difficult for the Fed to advocate cutting rates any time soon,” said Chris Zaccarelli, Independent Advisor Alliance chief investment officer.
Although the markets have managed to shake off January and February’s hot inflation data, signs of persistent inflation are fueling Wednesday’s downturn, according to Eric Diton, president and managing director of The Wealth Alliance.
“This is as good a catalyst as any. I don’t think this is the end of the bull market. But I do think it’s an excuse for a lot of people who have had a lot of gains, to take some of those gains off the table,” Diton said.
In addition to the big inflation report on Wednesday, investors are also looking forward to the meeting minutes from the Fed’s gathering last month. They will be hunting for clues on where policymakers stand on expected rate cuts this year. Those will be released at 2 p.m. ET.