US Stocks Dip on Inflation Data, Revised Rate Cut Expectations
U.S. equities witnessed a downturn on Wednesday, following a higher-than-anticipated inflation report for January. The Dow Jones Industrial Average (^DJI) declined by 0.5%, the S&P 500 (^GSPC) lost 0.3%, and the Nasdaq Composite (^IXIC) barely held above the flatline.
CPI Surges More Than Expected
The January Consumer Price Index (CPI) released Wednesday indicated a rise in core inflation, excluding volatile food and energy prices. Core prices surpassed the previous month's decline, advancing by 0.4% over January and 3.3% year-over-year, both exceeding December's rates.
Revised Fed Rate Cut Bets
The unexpected inflation data prompted revisions in investor expectations for Federal Reserve rate cuts in 2025. As of Wednesday, traders were pricing in only one rate cut, a shift from the two cuts anticipated earlier this year.
Earnings Provide Insights
A series of earnings reports provided insights into corporate resilience. Kraft Heinz (KHC) shares fell on a disappointing 2025 profit outlook, while CVS Health (CVS) stock rose on a smaller-than-expected quarterly profit decline.
Reddit Stock Stumbles
Reddit (RDDT) shares plummeted by 12% in after-hours trading after reporting mixed fourth-quarter earnings. While revenue exceeded estimates, diluted earnings per share fell below expectations.
Robinhood Stock Soars
Robinhood (HOOD) shares gained 6% in after-hours trading as the company surpassed analysts' expectations for quarterly results. Adjusted earnings per share and revenue both topped estimates.
Market Enters Bifurcated Rate Environment
The hot inflation data pushed the 10-year Treasury yield up to 4.63%, its highest level in over two weeks. This triggered a market reaction similar to that observed in the past year during periods of rising interest rates. Interest-rate sensitive sectors, such as real estate and small-cap stocks, underperformed.
Intel Gains on AI Rally
Intel (INTC) stock extended its previous day's gains, rising by over 6% on Wednesday. This momentum was driven by Vice President JD Vance's positive comments about domestic chip manufacturing. Other AI-related stocks also witnessed gains.
Rate Hikes Remain 'Unlikely'
Despite the hot inflation data, economists maintain that Fed rate hikes are still unlikely, although they acknowledge the increased possibility of such a move in the second half of 2025.
Housing Inflation Intensifies
Housing inflation gained momentum in January on a monthly basis, reversing the easing trend seen in the previous month. Shelter costs rose 0.4% compared to December's 0.3% increase.
Used Car Prices Jump
Used car prices witnessed their largest monthly increase since May 2023, contributing to overall inflation in the January CPI reading.
Nasdaq Turns Green on Tesla Rally
The Nasdaq Composite briefly entered positive territory in the afternoon, largely due to a 4% surge in Tesla (TSLA) shares.
CVS Stock Pops on Earnings Beat
CVS stock rose by over 14% after the company reported full-year and fourth-quarter earnings that surpassed Wall Street estimates.
Powell Uncertain on Interest Rate Path
Federal Reserve Chair Jerome Powell expressed uncertainty regarding the impact of President Trump's tariffs on the Fed's monetary policy path. He emphasized the need to wait for clarity on Trump's policy before making any adjustments to monetary policy plans.
Trump Slams Inflation, Calls for Lower Rates
President Trump dismissed the CPI data as "Biden inflation" and called for lower interest rates. He also linked the issue to impending tariffs.
Markets Trim Fed Rate Cut Bets
The unexpected inflation data reduced market expectations for Fed rate cuts in 2025 to just one, which is now anticipated later in the year.
JPMorgan: S&P 500 at Risk of Falling 2% on Hot Inflation
JPMorgan Market Intelligence warned that the S&P 500 could decline by up to 2% if the January CPI rises by 0.4% or more.
Europe Stocks Await CPI
European stocks were muted on Wednesday, awaiting the release of the U.S. CPI. The pan-European Stoxx 600 index traded marginally higher.