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Market Snapshot: Dow down 500 points, stocks tumble after hot inflation reading puts focus on Fed rate hike pace

U.S. stock indexes were near session lows Thursday afternoon, after a day of volatile trading, as investors assessed a hotter-than-expected January consumer-price index report that underlined expectations for the Federal Reserve to respond aggressively to persistent inflation running at a four-decade high.

How are stock indexes trading?

The Dow Jones Industrial Average
DJIA,
-1.44%

was down 527 points, or 1.5%, at 35,249.

The S&P 500
SPX,
-1.71%

fell 78 points, or 1.7%, to 4,508.

The Nasdaq Composite
COMP,
-1.93%

lost 284 points, or 2%, to trade at 14,205.

The Dow industrials rose 0.9% on Wednesday, with the S&P 500 gaining 1.5% and the Nasdaq jumping 2.1%, marking its best daily percentage gain since Jan. 31, according to Dow Jones Market Data.

What’s driving the markets?

Stocks slumped Thursday morning then recovered, but slid again late in the day, after the release of an inflation reading that sparked concern the Federal Reserve would need to move even more aggressively to raise interest rates.

The year-over-year rate of U.S. inflation climbed again in January to 7.5% and stayed at a 40-year high, suggesting upward pressure on consumer prices is unlikely to relent in the near future. On a monthly basis, the consumer-price index rose 0.6% in January. Economists polled by The Wall Street Journal had forecast a 0.4% gain.

“We haven’t seen these kinds of rates of inflation since 1982,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, in a phone call. “The natural tendency is to sell out of high valuation stocks. But we are having a sort of push-and-pull.”

The S&P 500’s utilities and information technology sectors both were down more than 2.5%, at last check, while energy and financials, often considered inflation plays, were off less than 1%.

Stocks in recent weeks retraced a large chunk of a January selloff inspired by inflation fears and expectations for a more aggressive Fed, said Art Hogan, chief market strategist at National Securities, in a note.

But that January selloff had come as investors largely “baked in” a Fed interest rate rise in March, he said. While fed-funds futures markets on Thursday moved to more aggressively price in the potential for a half percentage point hike, that was largely playing catch-up to market psychology.

Markets are likely to remain volatile in the run-up to the March Fed meeting, with an intense focus on any inflation-related data, but are likely to calm once the Fed makes its initial interest rate move and provides more detail on its path, Hogan said. Meanwhile, investors are balancing concerns about inflation and the Fed with a better-than-expected earnings reporting season, he said.

Mark Hulbert: The surprising twist in what rising inflation means for the stock market

St. Louis Fed President James Bullard said Thursday he backs an aggressive rate hike path, starting with a 50 basis point rise in March and a full 100 basis point increase by July 1, in a Bloomberg News interview.

“There’s still one CPI and PCE (personal consumer expenditures) report each on the docket before the next [Fed policy] meeting” in March, said Jason Pride, chief investment officer of private wealth at Glenmede.

“All else equal, more fuel to the inflation fire should harden the Fed’s resolve to begin raising interest rates at its next meeting in March and introduce quantitative tightening in the months thereafter,” he said, adding that chances of a half-point hike should be viewed as a possibility, though a quarter-point move remains the base case.

And: High inflation has jacked up the cost of food, gas, cars and rent – and there’s little relief in sight

Treasury yields jumped 10 basis points Thursday, with the 10-year Treasury note
TMUBMUSD10Y,
2.036%

topping the 2% threshold for the first time since 2019, trading at 2.03% in afternoon action.

Higher-than-expected inflation could keep pressure on interest-rate sensitive technology stocks, though some contend the hit already seen to some growth stocks has largely reflected the expected rise in rates. The Nasdaq Composite suffered its biggest percentage drop in almost two years last month, as well as its worst January in over a decade due to worries over inflation and tighter Federal Reserve monetary policy.

In other U.S. data, jobless claims fell 16,000 in latest week to 223,000.

What companies are in focus?

Disney shares
DIS,
+3.55%

climbed 3.8% after the entertainment giant reported record revenue and a profit of more than $1 billion as it added streaming subscribers than expected over the holidays, theme-park profit surged.

Shares of Coca-Cola Co.
KO,
+0.81%

were up 0.7% after the beverage giant delivered results that topped expectations and saw sales rise.

Twitter Inc.
TWTR,
-1.53%

shares fell 1.5% after results largely met expectations and the social media company announced a new $4 billion buyback program.

Twillio Inc.
TWLO,
+3.10%

shares gained 3.1% after the cloud communication software group posted a strong outlook and earnings and sales that shot past Wall Street estimates.

Uber Technologies Inc. UBER stock rose after the ride-share operator reported forecast-beating profit and sales. Shares were halted for pending news in late morning action. At an analyst meeting, Uber said expects to expand its gross bookings by between 22% and 25% a year through 2024, with earnings before interest, taxes, depreciation and amortization, or Ebitda, expected to reach $5 billion in 2024. Shares were down 4.9% after the halt was lifted.

How are other assets trading?

The ICE U.S. Dollar Index
DXY,
+0.04%
,
a measure of the currency against a basket of six major rivals, rose 0.1%.

West Texas Intermediate crude for March delivery
CL.1,
+0.54%

CLH22,
+0.54%

 rose 0.3% to end at $89.58 a barrel. Gold futures for April delivery 
GC00,
-0.35%

GCJ22,
-0.35%

extended wins to a fifth day, settling at $1,837.40 an ounce.

Bitcoin
BTCUSD,
-0.46%

slumped 1.1%, reversing earlier gains.

The Stoxx 600 Europe 
SXXP,
-0.21%

fell 0.2%, while the FTSE 100 
UKX,
+0.38%

 gained 0.4%.

The Shanghai Composite 
SHCOMP,
+0.17%

 rose 0.1%, while the Hang Seng Index 
HSI,
+0.38%

gained 0.3% and Japan’s Nikkei 225 
NIK,
+0.42%

rose 0.4%.

—Barbara Kollmeyer contributed reporting

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