NEW YORK: Wall Street’s main indexes slid on Tuesday, hitting one-week lows, after a hotter-than-expected consumer inflation reading drove US Treasury yields higher, pushing back market speculations for imminent interest rate cuts.
A Labor Department report showed US consumer prices increased more than expected in January amid rises in the costs of shelter and healthcare.
Rate-sensitive megacaps like Microsoft, Alphabet, Amazon.com and Meta Platforms lost between 0.7% and 1.6%, as yields on US Treasury notes across the board spiked to two-month highs.
Most chip stocks such as Micron Technology, Qualcomm and Broadcom 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 US 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 jumped 15% after activist investor Carl Icahn reported a 9.91% stake, adding that the carrier’s stock is ‘undervalued’.
Arista Networks shed 4.3% after the cloud solutions provider forecast current-quarter adjusted gross margin below expectations, while Marriott International lost 5.8% after the hotel operator forecast annual profit below Street expectations.
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