Dow tumbles more than 500 points as hot inflation data stokes fears about higher-for-longer rates
By Krystal Hur, CNN
New York (CNN) — Stocks took a dive Tuesday after a key inflation report revealed stubborn price increases, raising concerns on Wall Street that the Federal Reserve will keep rates higher for longer than anticipated.
The Dow Jones Industrial Average slid 525 points, or 1.4%, on Tuesday. The blue-chip index nosedived more than 700 points at its session lows. The S&P 500 declined 1.4% and the Nasdaq Composite lost roughly 1.8%.
CNN’s Fear and Greed Index, which tracks seven indicators of market sentiment in the United States, fell to a “greed” reading from “extreme greed” the prior day.
Tuesday’s selloff comes after the Dow on Monday notched a record-high close. The S&P 500 on Friday closed above 5,000 for the first time as investors cheered fresh data showing progress on inflation, but has since retreated to below that level.
The latest Consumer Price Index revealed that prices rose by 3.1% for the 12 months ended in January, according to Bureau of Labor Statistics data released Tuesday. On a monthly basis, CPI rose by 0.3% last month.
Both measures came in hotter than expected: Economists expected inflation to ease to 0.2% from December and slow to 2.9% annually, according to FactSet.
As stocks slid on Tuesday, bonds also sold off. The yield on the 10-year Treasury note jumped to 4.32%, its highest level since late November, according to Tradeweb. The 2-year Treasury yield rose to 4.66%.
Traders now largely expect the Federal Reserve to first cut its benchmark lending rate in June or July, after initially expecting cuts as soon as May, according to the CME FedWatch Tool.
“With this new data, a first cut in June seems like the most reasonable expectation unless we see a very quick, severe drop in labor market activity or a geopolitical shock,” wrote Greg Wilensky, head of US fixed income at Janus Henderson Investors, in a note Tuesday.
Earlier this year, Wall Street priced in about six rate cuts for 2024 after the Fed in December signaled that it will begin winding down rates after bringing them to a then-22-year high over the course of its rate-hiking campaign. That helped spur a widespread rally that saw everything from crypto to stocks to gold climb higher.
Stocks have gone on to jump even further and notch several record highs already this year. But some investors have warned that the market could waver as Wall Street contends with the fact that continued strong economic data means that the central bank, which has penciled in three cuts, likely won’t cut rates as promptly or aggressively as expected.
“The stock market can’t keep rallying if rates are going to be higher-for-longer — especially if the assumption that the Fed is completely done raising rates is incorrect,” wrote Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a Tuesday note.
Atlanta Fed President Raphael Bostic told CNN in an exclusive interview published Monday that he doesn’t see the Fed cutting rates until the summer.
Elsewhere, JetBlue shares popped 21.6% after Carl Icahn disclosed late Monday that he had taken a 9.9% stake in the company.
Hasbro shares declined 1.4% after missing Wall Street’s expectations for its latest quarter.
As stocks settle after the trading day, levels might change slightly.
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