US stocks on Wall street took a tumble on Wednesday after a key inflation report dashed investor hopes for a swift interest rate cut from the Federal Reserve. The unexpected uptick in consumer prices sent a shockwave through the market, causing major indexes to close down nearly 1%.
The Dow Jones Industrial Average (^DJI) shed approximately 425 points, translating to a decline of 1.1%. The S&P 500 (^GSPC) followed suit, dropping nearly 1%, while the tech-heavy Nasdaq Composite (^IXIC) fell by almost 0.9%. This broad-based selloff reflects investor anxiety surrounding the implications of rising inflation.
The bond market reacted swiftly to the inflation data, with yields surging. The 10-year Treasury yield (^TNX) jumped a significant 20 basis points, reaching a high of nearly 4.57% on Wednesday afternoon. This represents its highest level since November 2023 and signifies a rise in borrowing costs for businesses and consumers.
The culprit behind the market turmoil lies in the Consumer Price Index (CPI) report. March’s inflation data indicated a 0.4% increase from the previous month and a 3.5% rise over the past year. This unexpected acceleration in inflation exceeded economist forecasts, which predicted a 0.3% monthly increase and a 3.4% annual increase.
The hotter-than-anticipated inflation print could significantly impact the Federal Reserve’s monetary policy decisions. Prior to this data release, many investors anticipated rate cuts from the Fed later this year. However, the inflation surge is likely to cause the central bank to reconsider its stance.
According to the CME FedWatch tool, around 80% of bets currently anticipate the Fed maintaining its current interest rate levels at the June meeting. Notably, over half of investors now believe the central bank will refrain from changing rates even through July, pushing back expectations for an initial cut to September.
While the latest Federal Reserve meeting minutes released on Wednesday revealed that “almost all” officials believe a rate cut is likely “at some point,” the timing remains uncertain. The hotter inflation data will undoubtedly influence the Fed’s policy decisions in the coming months.
Despite the overall market decline, some small-cap stocks managed to make positive strides. Among the top gainers on Wednesday were Mind Medicine (MindMed) Inc. (MNMD), Desktop Metal, Inc. (DM), and LightInTheBox Holding Co., Ltd. (LITB).
The list also included Lumen Technologies, Inc. (LUMN), a company experiencing positive earnings growth, but facing an “Underperform” analyst rating. Nordic American Tankers Limited (NAT) and SOS Limited (SOSS), both boasting earnings growth, diverged in analyst recommendations, with NAT receiving a “Buy” and SOSS a “Sell.”
The optimism of Wall Street for swift rate cuts evaporated after the hotter-than-expected inflation report, leaving investors to grapple with a new timeline for the Fed’s monetary policy response. Investors will be closely monitoring upcoming economic data and Fed pronouncements to gauge the central bank’s response to inflation and its potential impact on future rate cuts.
