U.S. stocks sank Wednesday, reversing gains from earlier in the session, after inflation data showed that consumer price gains cooled in March and Fed minutes revealed that further rate increases haven’t been ruled out.
The S&P 500 (^GSPC) slid by 0.41%, while the Dow Jones Industrial Average (^DJI) fell by 0.11%. The technology-heavy Nasdaq Composite (^IXIC) dipped by 0.85%.
Bonds yields tipped lower after the release of Fed minutes from the last policy meeting in March. The yield on the 10-year note ticked down to 3.40%, while rate-sensitive two-year note yields slipped to 3.97% Wednesday.
Some of the key takeaways from the minutes of the Federal Reserve’s March meeting — when the central bank raised rates by 0.25% — showed that staff forecast the economy would likely slide into recession later this year. Officials expressed concern about the banking sector problems and scaled back their expectations for rate hikes, while some even considered pausing the rate hikes.
Data earlier in the day provided an improving picture on the state of inflation in the U.S. The March consumer price index showed price gains cooled last month in the slowest rise since May 2021. The consumer price index rose 0.1% in March, a slower pace than the 0.4% gain in February. March’s headline inflation rose at an annual clip of 5.0%, below expectations of 5.2%.
Core CPI, which strips out food and energy, grew 5.6%, in line with expectations. Meanwhile, housing costs are still a key driver of inflation, according to the BLS data, even as the residential market stabilizes.
“Today’s CPI takes some heat off the Fed, for now. Moderating price pressures combined with signs of cooling in the labor market will offer a temporary reprieve to markets,” Ronald Temple, chief market strategist at Lazard, wrote following the release.
“While this is good news, it does not mean tightening is over. Core inflation remains far above the Fed’s target, and the path to 2% will be bumpy. With core CPI likely to end the year above 3%, the Fed has more work to do before it can declare victory over inflation,” Temple added.
Investors will continue to digest Wednesday’s CPI report as it could provide some clues to whether the Fed will continue to raise rates at its next meeting. Markets have priced in a 69% probability that the Federal Reserve will raise interest rates by another 0.25% in May, according to data from the CME Group. That moved down slightly compared to before the CPI report’s release.
The latest Fedspeak came from San Francisco Fed President Mary Daly on Wednesday. Daly made remarks for the first time since the collapse of Silicon Valley Bank, an institution that was under the supervision of the San Francisco Fed. Daly said that the “full impact of this policy tightening is still making its way through the system.”
Additionally, “the strength of the economy and the elevated readings on inflation suggest that there is more work to do,” she said.
On Tuesday, three Fed speakers weighed in on the prospect of another rate hike ahead of the May meeting. New York Fed President John Williams told Yahoo Finance’s Jennifer Schonberger that the Federal Reserve has its work cut out for it as the central bank tries to bring down inflation to the Fed’s goal of 2% amid a strong labor market and sticky price pressure.
Separately, Philadelphia Fed President Harker said that he wanted to “get rates above 5[%] and then sit there for a while,” which would imply at least one more 0.25% move.
Meanwhile, Chicago Fed President Austan Goolsbee struck a more dovish tone, suggesting that the Fed should proceed with caution when raising rates “too aggressively” until it can assess “ how much work the headwinds are doing for us in getting down inflation.”
Elsewhere, the Bank of Canada left interest rates unchanged for the second consecutive meeting, citing that recent data pointed to an easing on inflation.
In single-stock moves, American Airlines Group Inc. (AAL) shares fell 9% after the airline giant said Wednesday that first-quarter profit could come in below expectations as the company faces hurdles with higher costs. Shares of United Airlines Holdings, Inc. (UAL) also dropped over 5%.
Shares of Shopify Inc. (SHOP) climbed Wednesday after JMP Securities upgraded the e-commerce company to market outperform and set a $65 price target.
Triton International Limited (TRTN) shares surged over 30% after Brookfield Infrastructure Partners LP announced it would acquire Triton in a $13.3 billion deal.
Shares of Alibaba Group Holding Limited (BABA) dropped as other U.S.-listed Chinese stocks fell the most in three weeks.
