Stock market today: Wall Street falls after hot inflation report sparks hopes of June rate cut | National News

NEW YORK (`) — A bust on Wall Street sent stocks lower Wednesday as concerns grew that what seemed like a blip in the fight to curb inflation was turning into a worrisome trend.

The S&P 500 fell 0.9%, and the vast majority of stocks in the index fell. The Dow Jones Industrial Average fell 422 points, or 1.1%, and the Nasdaq Composite fell 0.8%.

In the bond market, Treasury yields also jumped, adding pressure to the stock market after a report showed inflation was higher than economists expected last month. It is the third straight report to suggest that progress in reducing high inflation may be stalling. That hurts hopes that the disappointing inflation data for January and February may not have been as bad as they seemed for technical reasons.

“There are still flashes of inflation here and there in the economy,” said Joe Davis, chief global economist at Vanguard.

This is painful for shoppers as prices may be even higher in store. On Wall Street, this is raising fears that the Federal Reserve will hold off on the rate cuts that traders want and have been betting on.

The S&P 500 had already risen more than 20% since Halloween, partly on expectations that the Federal Reserve would cut its key interest rate, which is at its highest level in more than two decades. Such cuts would ease pressure on the economy and encourage investors to pay higher prices for stocks, bonds, cryptocurrencies and other assets.

However, the Fed is waiting for more evidence that inflation is falling sustainably to its 2% target. After an encouraging slowdown last year, there are now fears that inflation could stagnate after inflation reports for January, February and March all came in hotter than expected, as did data on the broader economy.

“Two data points don’t make a trend, but maybe three does,” said Brian Jacobsen, chief economist at Annex Wealth Management.

“If we get another reading like this, the Fed chatter will shift from when to cut rates to whether to raise rates.”

Prices for everything from bonds to gold fell immediately after inflation data was released this morning.

The yield on the 10-year Treasury note rose to 4.54% from 4.36% late Tuesday, back to November levels. The two-year Treasury yield, more closely aligned with expectations of Fed action, shot even higher, rising to 4.97% from 4.74%.

Traders sharply reduced their bets that the Fed could start cutting interest rates in June. According to CME Group's FedWatch tool, they now see the chance of that happening at just 17%, compared to nearly 74% a month ago.

Perhaps more importantly, traders have only bet the Fed will cut interest rates twice this year. Earlier this year they predicted six or more cuts by 2024.

High interest rates have a negative impact on inflation by slowing the economy and weighing on investment prices. There are fears that interest rates that are too high for too long could trigger a recession.

Wall Street's biggest losers on Wednesday included real estate funds, utilities and other stocks that tend to suffer the most from high interest rates.

Real estate stocks in the S&P 500 fell 4.1%, posting by far the largest loss among the 11 sectors that make up the index. That included a 6.1% decline for office owner Boston Properties and a 5.3% decline for Alexandria Real Estate Equities.

The number of homebuilders also plummeted because higher interest rates could cool the housing industry by making mortgages more expensive. DR Horton fell 6.4%, Lennar fell 5.8% and PulteGroup fell 5.2%.

Overall, the S&P 500 fell 49.27 points to 5,160.64. The Dow fell 422.16 to 38,461.51 and the Nasdaq Composite fell 136.28 to 16,170.36.

Critics had already said that the US stock market appeared too expensive in several respects. They said either interest rates would have to fall or companies' profits would have to rise for stock prices to appear more reasonable. There is hope on Wall Street that the robust U.S. economy could help support earnings, even if it dampens hopes of rate cuts.

Major U.S. companies are lining up on the runway to announce how much profit they made in the first three months of the year, and Delta Air Lines helped kick off earnings season by delivering better-than-expected results.

The airline said it is seeing strong demand for flights around the world and expects that strength to continue through the spring. However, they also refrained from raising the profit forecast for the full year. The stock rose as much as 4% during the morning before posting a loss of 2.3%.

The banking industry will soon be in the spotlight this earnings season, with JPMorgan Chase and Wells Fargo reporting on Friday.

On stock markets abroad, indices were mixed across much of Europe. In Asia, stocks rose 1.9% in Hong Kong but fell 0.7% in Shanghai after Fitch Ratings cut its outlook for China's public finances.

` business reporters Matt Ott and Elaine Kurtenbach contributed.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.