Stocks fell Thursday after another hot inflation report, and a decline in jobless claims, showed the economy is holding up amid the Federal Reserve’s rate hikes.
The Dow Jones Industrial Average shed 431.20 points, or 1.26%, to close at 33,696.85. The S&P 500 dipped 1.38% to 4,090.41, and the Nasdaq Composite fell 1.78% to close at 11,855.83. Microsoft and Disney contributed the most to the Dow’s decline, down 2.66% and 3.12% respectively. Tesla shed 5.69% following a vehicle recall, weighing on the S&P 500.
Stocks slipped after January’s producer price index, another inflation measure, rose 0.7% on the month per Thursday’s report, while economists surveyed by Dow Jones expected a 0.4% increase. Initial jobless claims unexpectedly fell for the week ending Feb. 11, per a Labor Department report.
The new data comes after January’s consumer price index and retail sales report were both higher than expected, suggesting that the Fed may have further to go in its efforts to tame inflation.
“Both inflation readings this week point to the stickiness of inflation and that the fight isn’t over, especially when considering today’s PPI reading was the highest month-over-month increase since early summer,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley.
He added that declining jobless claims suggest the labor market remains tight.
“It shouldn’t be a surprise to see the market take a breather as hopes of a dovish Fed in the coming months fade,” Loewengart said. “Bottom line is investors should recognize inflation may not return to normal levels as quick as many hope, and with that may come more volatility.”
Comments from St. Louis Federal Reserve President James Bullard that he’d advocated for a 50 basis-point interest rate hike at the last meeting and could see a hike of that magnitude in March also weighed on equities. Cleveland Fed President Loretta Mester also said she supported a larger hike.
The Dow is on track for a third consecutive week of losses. The S&P 500 is flat on the week, and the Nasdaq is poised to gain slightly.
Investors will also continue watching company earnings for signs about the strength of the consumer. Dropbox, DoorDash and DraftKings are all scheduled to report Thursday after the bell.
