U.S. Stocks Plunge As Inflation Data Reignites Interest Rate Worries

(RTTNews) - Stocks moved sharply lower in early trading on Wednesday and continued to see significant weakness throughout the session. The major averages all showed notable moves to the downside, with the Dow falling to its lowest closing level in almost two months.

The major averages remained firmly negative going into the close of trading. The Dow tumbled 422.16 points or 1.1 percent to 38,461.51, the Nasdaq slid 136.28 points or 0.8 percent to 16,170.36 and the S&P 500 slumped 49.27 points or 1.0 percent to 5,160.64.

The early sell-off on Wall Street came 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 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 spiking above 4.50 percent for the first time since mid-November.

Following the release of the data, the chances of a rate cut in June have plunged to just 16.5 percent, according to CME Group's FedWatch Tool.

The minutes of the central bank's latest monetary policy meeting, released later in the day, revealed Fed officials were already not convinced inflation is moving sustainably down to 2 percent after January and February readings on core and headline inflation had been firmer than expected.

"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."

Sector News

Interest rate-sensitive housing and commercial real estate stocks turned in some of the worst performances on the day, with the Philadelphia Housing Sector Index and the Dow Jones U.S. Real Estate Index plunging by 4.3 percent and 4.1 percent, respectively.

Substantial weakness also emerged among airline stocks, as reflected by the 3.5 percent nosedive by the NYSE Arca Airline Index.

Shares of Delta Air Lines (DAL) tumbled by 2.3 percent despite the airline reporting better than expected first quarter earnings and predicting strong summer travel demand.

Banking stocks also moved sharply lower over the course of the session, dragging the KBW Bank Index down by 3.0 percent.

Networking, telecom and utilities stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Energy stocks were among the few groups to buck the downtrend, moving modestly higher as the price of crude oil jumped amid geopolitical concerns. 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.

The major European markets also ended the day mixed after seeing strength earlier in the session. While the French CAC 40 Index edge down by 0.1 percent, the German DAX Index crept up by 0.1 percent and the U.K.'s FTSE 100 Index rose by 0.3 percent.

In the bond market, treasuries 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, soared 19.4 basis points to 4.560 percent.

Looking Ahead

Additional inflation data may impact trading on Thursday, as the Labor Department is due to release its report on producer price inflation in the month of March.