Wall Street Declines as Inflation Data Dampens Rate-Cut Hopes

On February 13th, Wall Street‘s major indexes experienced a slide, reaching one-week lows, following a hotter-than-anticipated consumer inflation report that propelled US Treasury yields higher, dispelling market expectations for imminent interest rate cuts.

Inflation Report Impact and Market Reaction

A report from the Labor Department revealed that US consumer prices surged more than anticipated in January, driven by increases in shelter and healthcare costs. This unexpected inflationary pressure prompted a spike in US Treasury yields to two-month highs, resulting in significant declines among rate-sensitive mega-cap stocks such as Microsoft, Alphabet, Amazon.com, and Meta Platforms, which lost between 1.2% and 2.2%.

Sector-specific Impact

Chip stocks, including Micron Technology, Advanced Micro Devices, and Broadcom, also witnessed notable declines ranging from 2.5% to 4.5%, contributing to a 2.5% drop in the Philadelphia SE Semiconductor index. Real estate and consumer discretionary sectors led losses among the 11 major S&P 500 indexes, with real estate hitting an over two-month low.

Trader bets for a 25-basis-point rate reduction in May plummeted to 38% from approximately 58% prior to the release of the inflation data, as indicated by the CME FedWatch tool. Skyler Weinand, Chief Investment Officer at Regan Capital, suggested, “Tuesday’s stronger-than-expected CPI print may cause the Fed to delay its rate cuts past May and June,” emphasizing the potential impact on interest rate dynamics in response to evolving inflationary trends.

Market Volatility and Performance

The Cboe volatility index, reflecting market sentiment and fear levels, reached an over two-week high amidst the heightened uncertainty surrounding interest rate expectations. As of 9:42 am ET, the Dow Jones Industrial Average experienced a decline of 427.32 points, or 1.10%, while the S&P 500 and Nasdaq Composite were down 1.33% and 1.90%, respectively. Additionally, the small-cap Russell 2000 index shed 1.8%.

Recent Market Trends and Notable Movements

Despite recent market rallies, with the S&P 500 recording gains in 14 out of the past 15 weeks, concerns regarding inflationary pressures and potential adjustments to interest rates have triggered market volatility. Notable movers included JetBlue Airways, which surged 11.3% following activist investor Carl Icahn’s disclosure of a 9.91% stake, and Coca-Cola, which rose 1.2% after surpassing fourth-quarter revenue expectations.

However, not all companies fared well, as evidenced by Arista Networks, which declined by 5.1% after providing a current-quarter adjusted gross margin forecast below expectations. Similarly, software firm Cadence Design Systems dropped 2.7% following a bleak quarterly sales forecast, while toymaker Hasbro experienced a 3.3% decline after reporting a steeper-than-expected drop in holiday-quarter sales and profit.

Market Sentiment and Outlook

Tripadvisor witnessed a notable increase of 16.1% after announcing the formation of a special committee to evaluate potential deal proposals, indicating ongoing market interest in corporate strategies and potential consolidation within the industry. Overall, declining issues significantly outnumbered advancers on both the NYSE and Nasdaq, reflecting heightened market pessimism.

Wall Street’s decline on February 13th underscored the significant impact of unexpected inflation data on market sentiment and interest rate expectations, highlighting the ongoing volatility and uncertainty prevailing in financial markets.

Featured image credit: georgeclerk via iStock