On Tuesday, the stock market encountered a significant downturn following the release of inflation data for January, which exceeded economists’ expectations and triggered fears about the Federal Reserve’s ability to cut rates multiple times this year. The Dow Jones Industrial Average experienced its largest drop since Feb. 21, 2023, shedding 620 points or 1.6%, while the S&P 500 slid 1.6% and the Nasdaq Composite fell 2%.
The consumer price index (CPI) for January had a 0.3% increase from December, surpassing the anticipated 0.2% rise, and reported a 3.1% surge on an annual basis, compared to the expected 2.9%. Core prices, which exclude volatile food and energy components, increased by 0.4% month-over-month and 3.9% year-over-year, surpassing projections of a 0.3% increase and a 3.7% rise, respectively.
Art Hogan, chief market strategist at B. Riley Financial, stated that the higher-than-expected CPI figures provided an excuse for investors to trim some of the market’s recent gains, especially in light of the prevailing narrative of a steadily rising market. He noted that the data underscored the non-linear trajectory of economic recovery.
Following the release of the CPI data, Treasury yields surged, with the 2-year yield exceeding 4.63% and the 10-year yield topping 4.29%. This spike in yields particularly affected technology shares, including industry giants like Microsoft and Amazon, which had previously thrived in a low-rate environment. Microsoft had a 2.2% decline, while Amazon fell by 2.1%.
In corporate news, JetBlue Airways experienced an extraordinary 20% spike in its stock price after activist investor Carl Icahn disclosed a nearly 10% stake in the airline, signaling potential changes on the horizon. However, toymaker Hasbro went through a 3% drop in its stock value after failing to meet analyst expectations for the fourth quarter. Similarly, Avis Budget Group encountered a huge setback, with shares plummeting by 22% due to subpar fourth-quarter revenue figures.
The market’s reaction to the inflation data represents growing concerns among investors about the possible impact of rising inflation on monetary policy decisions by the Federal Reserve. The prospect of fewer rate cuts in the future has cast uncertainty over the sustainability of the bull market rally, making investors to reevaluate their positions and adjust their strategies accordingly. Investors are now likely to closely monitor upcoming economic indicators and statements from policymakers for insights into the trajectory of interest rates and their implications for equity markets.
