Stock Market Takes a Hit Following Unexpected Inflation Report
The stock market experienced a significant downturn on Tuesday, marking its worst day since March 2023, as investors reacted to an inflation report for January that came in hotter than expected. This inflation data has led to a spike in Treasury yields and cast doubt on the possibility of the Federal Reserve implementing several rate cuts this year, a scenario that had previously buoyed the equity market's outlook.
The Dow Jones Industrial Average faced a sharp decline, dropping 524.63 points, or 1.35%, to close at 38,272.75. At one point during the trading session, the Dow plummeted by 757.52 points, or nearly 1.95%. Similarly, the S&P 500 and the Nasdaq Composite also experienced downturns, falling 1.37% and 1.8% to close at 4,953.17 and 15,655.60, respectively. The Russell 2000 index, which tracks smaller companies, was not spared, recording a near 4% loss, its most significant setback since June 2022.
The unexpected inflation data indicated that the consumer price index (CPI) rose by 0.3% in January from the previous month and showed a 3.1% increase on an annual basis. These figures surpassed the expectations of economists polled by Dow Jones, who had anticipated a 0.2% month-over-month increase in January and a 2.9% rise from the year before. Core prices, excluding the more volatile food and energy components, also exceeded forecasts, rising 0.4% month-over-month and 3.9% annually against the expected increases of 0.3% and 3.7%, respectively.
Art Hogan, chief market strategist at B. Riley Financial, noted that the higher-than-anticipated CPI figures served as a prompt for investors to reassess the market's recent gains. The rise in the 2-year and 10-year Treasury yields, which climbed above 4.66% and 4.32% respectively, further contributed to the market's downturn.
Tech giants such as Microsoft and Amazon, which had previously led the market's ascent to record highs, were among the hardest hit in Tuesday's trading, each losing more than 2%. In other corporate news, JetBlue Airways saw a nearly 22% surge after activist investor Carl Icahn disclosed a nearly 10% stake in the airline. Conversely, Hasbro and Avis Budget Group faced declines, with Hasbro missing fourth-quarter expectations and Avis Budget Group's shares dropping about 23% due to disappointing fourth-quarter revenue.
This market shakeup underscores the sensitivity of investors to inflation trends and interest rate expectations, highlighting the ongoing challenges facing the Federal Reserve in its efforts to stabilize the economy while keeping inflation in check.