[ad_1]
NEW YORK (AP) — U.S. stocks fell sharply on Tuesday after disappointing inflation data left investors facing the bitter prospect that interest rates would remain high for months longer than they expected.
The S&P 500 fell 1.4% as traders delayed forecasts for when the Federal Reserve will deliver long-awaited interest rate cuts. He Inflation report hotter than expected may have put the final nail on the hope that the first cut could arrive in March. It also moved many forecasts from May to June, according to CME Group data.
The Dow Jones Industrial Average fell 524 points, or 1.4%, from its record set the previous day. The Nasdaq Composite, which has been flirting with its all-time high set for 2021, sank 1.8%.
High interest rates hurt all types of investments and tend to particularly hurt high-growth stocks like technology companies. A 2.2% drop for Microsoft and a 2.1% drop for Amazon were the two heaviest weights in the market.
Losses were widespread, with nearly 90% of S&P 500 stocks falling. It’s one of the biggest hurdles for the index since it began its big record rally in late October. Much of that rise was driven by hopes that inflation was cooling enough for the Federal Reserve to cut rates and ease pressure on the economy.
Shares of smaller companies fell further because high rates could hurt them more than their larger rivals by making it harder to borrow cash. The Russell 2000 index of smaller stocks plunged 4% on its worst day since two summers ago.
Some analysts warned that the inflation data could mean not only a delay in rate cuts but also the possibility of further increases. The Federal Reserve has already raised its main interest rate to the highest level since 2001 in hopes of reducing high inflation. High rates work by slowing down the overall economy.
But it’s still just a data point, following months of encouraging trends in which inflation pressures eased, said Chris Larkin, managing director of E-Trade trading and investing at Morgan Stanley.
“Until proven otherwise, the long-term cooling trend in inflation remains in place,” he said. “The Federal Reserve had already made it clear that rate cuts were not going to come as soon as many people wanted. “Today was simply a reminder of why they were willing to wait.”
Still, the reaction across Wall Street was immediate and fierce.
Yields rose in the bond market as traders piled on expectations that the Federal Reserve would keep rates high longer. The 10-year Treasury yield rose to 4.31% from 4.18% late Tuesday.
The two-year Treasury yield, which moves the most based on the Federal Reserve’s expectations, jumped to 4.66% from 4.47%.
Even after the surprising inflation report, the most likely outcome remains that the economy makes a soft landing and avoids a painful recession as inflation cools, according to Alexandra Wilson-Elizondo, co-chief investment officer of Goldman’s multi-asset solutions business. . Sachs Asset Management.
But he said there is still a risk that conditions could swing to one of two extremes: either the economy falls into a recession under the weight of high interest rates, or inflation accelerates again in part because of how far they have fallen. and to Treasury yields and stock prices. already rose on expectations of upcoming rate cuts.
The forced recalibration of rates by traders moved Wall Street’s expectations closer to what the Federal Reserve has outlined. Federal Reserve officials previously said they were planning three rate cuts this year, as inflation is expected to cool toward its 2% target from its peak above 9% two summers ago.
Previously, traders were forecasting up to six cuts in 2024. Now, they are largely betting on three or four cuts.
Critics have been warning that stock prices may have risen too much, too fast, given overly optimistic hopes for rate cuts and other risks. The positive for the markets recently is that most companies have beaten analysts’ profit forecasts in the last quarter.
Arista Networks joined that parade after reporting stronger-than-expected earnings and revenue. However, its shares fell 5.5%. Underscoring again the power of high expectations, analysts said its shares may have fallen because investors expected a better forecast of the company’s upcoming results. At the start of the day, its shares were already up almost 20% so far this year.
Moody’s fell 7.9% and suffered the worst loss in the S&P 500 after the credit rating company reported weaker fourth-quarter earnings than Wall Street had forecast.
On the winning side of Wall Street, JetBlue Airways surged 21.6% after activist investor Carl Icahn revealed he had built up an ownership stake in the airline and said he considers the stock undervalued.
In total, the S&P 500 fell 68.67 points to 4,953.17. The Dow Jones fell 524.63 to 38,272.75 and the Nasdaq sank 286.95 to 15,655.60.
In foreign stock markets, indices fell across Europe. In Asia, China’s markets were closed for holidays, but Japan’s Nikkei 225 rose 2.9% and South Korea’s Kospi gained 1.1%.
___
AP business writer Yuri Kageyama contributed.
[ad_2]
Source link