Wall St battered as hot inflation data stymies rate-cut hopes

Wall Street’s main stock indexes tumbled on Wednesday as investors turned risk averse after a stronger-than-anticipated inflation reading doused hopes of the Federal Reserve kicking off its monetary easing cycle in June.

U.S. consumer prices increased more than expected in March as Americans paid more for gasoline and rental housing, leading financial markets to surmise that the central bank would delay cutting interest rates until September.

The Consumer Price Index (CPI) rose 0.4% on a monthly basis in March. Annually, it increased 3.5%, versus a 3.4% estimated growth.

Excluding volatile food and energy components, the core figure rose 0.4% month-on-month in March. Annually, it gained 3.8%, versus the estimated 3.7% increase.

“If it were the only number that was disappointing, we would say let’s not make too big a deal about it, but this is the third month in a row that the report has been hotter than expected,” said Bob Doll, CEO and CIO at Crossmark Global Investments.

US consumer prices accelerate; seen delaying Fed rate cut

“So what it’s saying is inflation is not under control and the Fed therefore is unlikely to lower rates anytime soon.”

Traders slashed bets of the Fed cutting interest rates in June after the CPI report, estimating that the central bank will wait until September before it makes its first cut.

Yields across government bonds spiked after the data was released, with the 10-year note climbing back to 4.5008% - its highest level since last November.

Minutes of the Fed’s March meeting, where it stuck to its guidance of three rate cuts this year, are due later in the day and could be crucial in gauging the central bank’s stand on policy easing.

All 11 S&P 500 sectors were trading lower. The real estate sector, which led declines, fell 4.0% and was on track for its worst single-day drop since June 2022.

Other rate-sensitive sectors such as utilities dropped 1.8%, while the small-cap Russell 2000 Index lost 2.4%.

At 11:20 a.m. ET, the Dow Jones Industrial Average was down 460.95 points, or 1.19%, at 38,422.72, the S&P 500 was down 55.84 points, or 1.07%, at 5,154.07, and the Nasdaq Composite was down 181.29 points, or 1.11%, at 16,125.35.

Most megacap growth stocks slipped, but AI giant Nvidia bucked the trend and was last up 1.4%.

Among single stocks, U.S.-listed shares of Alibaba gained 1.3% after the company’s co-founder Jack Ma penned a lengthy memo to employees on Tuesday, expressing support for the internet giant’s restructuring efforts - a rare move from the billionaire who has spent the last few years away from the spotlight.

Declining issues outnumbered advancers for a 8.09-to-1 ratio on the NYSE and for a 3.99-to-1 ratio on the Nasdaq.

The S&P index recorded three new 52-week highs and seven new lows, while the Nasdaq recorded 26 new highs and 128 new lows.