US STOCKS-Wall St slides as inflation stalls, rate cut hopes wane

Housing stocks were on course for their biggest daily decline since Jan. 23 and the Russell 2000 was set for its steepest one-day slide since Feb. 13. The CPI report "was really important regarding expectations for Fed rate cuts for the remainder of this year," Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.

U.S. stocks tumbled on Wednesday after hotter-than-expected inflation data threw cold water on hopes the Federal Reserve would enter its monetary policy easing phase soon. All three major U.S. stock indexes veered sharply lower at the opening bell following the Labor Department's Consumer Price Index (CPI) report, which landed north of consensus and offered a reminder that inflation's road back down to the Fed's 2% target will continue to be a long and meandering one.

Minutes from the Fed's March policy meeting reflected officials' concerns that inflation's progress toward that target might have stalled, and restrictive monetary policy may need to be maintained for longer than anticipated. Equity prices were further pressured by benchmark Treasury yields, which breached 4.5% to touch its highest level since November.

Interest rate-sensitive stocks were hardest hit, with real estate primed for its biggest one-day percentage drop since June 2022. Housing stocks were on course for their biggest daily decline since Jan. 23 and the Russell 2000 was set for its steepest one-day slide since Feb. 13.

The CPI report "was really important regarding expectations for Fed rate cuts for the remainder of this year," Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta. "And it went off according to script; that if there was a meaningful surprise to the upside, which there was, the markets would react the way they did." The CPI data prompted markets to reset expectations regarding the timing and extent of Fed rate cuts.

Financial markets have now priced in a dwindling 19.3% likelihood of a 25 basis point rate cut in June, down from 56.0% just prior to the report's release, according to CME's FedWatch tool. "I think a July rate cut is still possible," said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. "There are several key data points that will be coming in before then, but I would be surprised if A) there was a June cut and B) if there will be more than two cuts this year."

At 2:13PM ET, the Dow Jones Industrial Average fell 445.87 points, or 1.15%, to 38,437.8, the S&P 500 lost 49.82 points, or 0.96%, to 5,160.09 and the Nasdaq Composite dropped 146.25 points, or 0.9%, to 16,160.39. Of the 11 major sectors of the S&P 500, all but energy were red, with real estate shares suffering the steepest decline.

Most megacap growth stocks slipped with the exception of Nvidia Inc, which bucked the trend by rising 1.7%. U.S.-listed shares of Alibaba advanced 1.8% after the company's co-founder Jack Ma released a memo to employees on expressing support for the internet giant's restructuring efforts - a rare move from the billionaire who has spent the last few years away from the spotlight.

Declining issues outnumbered advancing ones on the NYSE by a 6.84-to-1 ratio; on Nasdaq, a 3.76-to-1 ratio favored decliners. The S&P 500 posted three new 52-week highs and 8 new lows; the Nasdaq Composite recorded 29 new highs and 152 new lows.

Investors will now focus on Thursday's producer prices report for a clearer picture of March inflation, and the unofficial kick-off of first quarter earnings season. On Friday, a trio of big banks - JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co - are slated to post results. Analysts expect aggregate S&P 500 earnings in the first quarter to grow 5.0% from last year, according to LSEG data. That is lower than the 7.2% annual earnings growth for the quarter forecast on Jan. 1.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)