US Stocks Decline as Inflation Heats Up
US stocks closed lower on Wednesday following the release of a hotter-than-expected inflation report for January. The Dow Jones Industrial Average (^DJI) fell 0.5%, the S&P 500 (^GSPC) declined 0.3%, and the tech-heavy Nasdaq Composite (^IXIC) finished just above flat.
Inflation Surprises to the Upside
The Consumer Price Index (CPI) report showed an acceleration in inflation in January, exceeding economist expectations. Core inflation, excluding volatile food and energy prices, rose 0.4% month-over-month and 3.3% year-over-year, both above forecasts.
Fed Rate Cut Outlook Dims
The surprise inflation data pushed back investors' expectations for interest rate cuts in 2025. Traders now anticipate only one rate cut, down from two priced in earlier. Consequently, the 10-year Treasury yield (^TNX) jumped 10 basis points to nearly 4.64%, its highest level in over two weeks.
Mixed Corporate Earnings
Earnings reports provided insights into corporate resilience. Kraft Heinz (KHC) shares fell after the packaged food maker's 2025 profit outlook fell short. However, CVS Health (CVS) stock gained on a smaller-than-expected decline in quarterly profit.
Other Market News
* Earnings Surge: Reddit (RDDT) stock initially declined but later rebounded in after-hours trading following mixed fourth-quarter earnings.
* Robinhood Pops: Robinhood (HOOD) shares rose in after-hours trading after the company reported above-consensus earnings and revenue.
* Rate Sensitivity Concerns: The recent inflation print raised concerns about the impact of higher rates on interest rate-sensitive sectors, such as real estate and the Russell 2000 (^RUT).
* Intel Gains: Intel (INTC) stock extended its gains from Tuesday, rallying over 6% on Wednesday.
* AI Rally Continues: AI-related stocks continued to surge, with several smaller companies rallying during afternoon trade.
* Fed Rate Hikes Unlikely: Economists generally agreed that the January inflation data does not yet justify interest rate hikes.
* Housing Inflation Intensifies: Housing inflation accelerated in January on a monthly basis, driven by rising shelter costs.
* Used Car Prices Jump: Used car prices jumped the most since May 2023, contributing to overall inflation.
* Nasdaq Rebounds: The Nasdaq Composite turned positive around midday as Tesla (TSLA) shares rallied.
* Powell on Interest Rates: Fed Chair Jerome Powell acknowledged uncertainty in the central bank's monetary policy path due to factors such as tariffs and policy changes.
* Trump Dismissal: President Trump characterized the hot inflation data as "Biden inflation" and called for lower interest rates.
* Gold Rally Pauses: Gold prices pulled back from recent record highs as investors assessed Powell's message.
* China Stock Surge: Wall Street analysts predict that China's AI-driven stock surge will continue.
* Alibaba Soars on AI Hype: Alibaba (BABA) stock jumped over 10% on news of its collaboration with Apple on AI.