Stock market today: Wall Street falls and yields wobble following inflation update

AP , Thursday 11 Jan 2024

Wall Street is slipping Thursday after a warmer-than-expected report on inflation forced some investors to push back forecasts for when the Federal Reserve could deliver long-sought cuts to interest rates.

pump jacks
File Photo: Active pump jacks increase pressure to draw oil toward the surface at the South Belridge Oil Field in unincorporated Kern County, California, approximately 141 miles (227 km) northwest of Los Angeles, California. AFP

 

The S&P 500 was down 0.2% in afternoon trading after erasing an early gain. The Dow Jones Industrial Average was down 56 points, or 0.2%, as of 1:56 p.m. Eastern time, and the Nasdaq composite was 0.2% lower.

Stocks had been roaring toward record heights on expectations that a cooldown in inflation would convince the Federal Reserve to cut interest rates sharply in 2024, which would boost prices for investments. Thursday morning’s inflation report was seen as a test that could show whether Wall Street’s hopes had gone overboard.

It showed U.S. consumers paid prices that were 3.4% higher overall in December than a year earlier. That’s an acceleration from November’s 3.1% inflation rate and a touch warmer than economists expected.

But trends underneath the surface may have been a bit more encouraging. After stripping out food and fuel prices, which can shift sharply from month to month, the rise in prices from November into December was close to economists’ expectations.

Altogether the data will likely cause traders to push back forecasts for when the first cut to rates will arrive, several analysts said, but they don’t preclude the central hopes that have sent stocks near records: Inflation is cooling, albeit in a jagged way, and the economy looks likely to avoid a bad recession.

“Today’s inflation report reinforces the notion that the market had gotten a little overexcited around the timing of rate cuts,” said Seema Shah, chief global strategist at Principal Asset Management. “These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2%.”

Treasury yields rose immediately after the inflation report when traders trimmed bets that the first cut to rates will arrive as soon as March. But they began wobbling soon after that.

The yield on the 10-year Treasury slipped to 3.98% shortly before the report's release. It bounced back to 4.02%, just below its late Wednesday level of 4.04%.

The two-year Treasury yield, which more closely tracks expectations for Fed action, went on a similar, shaky run. It sank from Wednesday night into Thursday morning before jumping after the inflation report and then yo-yoing a couple times.

Economists at Bank of America said they're sticking with their forecast for the first cut to rates to arrive in March, despite the warmer-than-expected inflation data. Some of the drivers of the recent strength, particularly used cars, should fade in coming months, they said in a BofA Global Research report.

A jump in oil prices put some upward pressure on inflation and yields, as they trimmed their sharp losses from earlier in the week. A barrel of benchmark U.S. crude rose 0.7% to $71.88. Brent crude, the international standard, gained 0.6% to $77.26 per barrel.

Also in the energy industry, natural-gas producer Chesapeake Energy jumped 3.4% after it agreed to sell itself to Southwestern Energy in an all-stock deal valued at $7.4 billion. Southwestern slipped 1.9%.

Elsewhere on Wall Street, Citigroup fell 2.1% after it detailed a list of charges it will take against its fourth-quarter results, related to everything from Argentina's troubled economy to a previously disclosed special assessment by the Federal Deposit Insurance Corp.

Hertz Global Holdings sank 3.9% after it said it expects to record a drop in the fourth quarter for an underlying measure of profits, and it's selling about 20,000 electric vehicles to cut its EV fleet by a third.

In cryptocurrencies, the price of bitcoin was swinging a day after U.S. regulators allowed for the trading of the first exchange-traded funds that hold the digital currency rather than just futures related to it. The hope in crypto world is that by making investing in bitcoin easier, the ETFs will draw new types of investors to the field, including retirement savers and big institutions.

Coinbase Global, which will keep custody of bitcoins for some of the ETFs, climbed at the start of trading but then gave up the gains. It was recently down 6%.

In stock markets abroad, indexes were mixed.

Tokyo's Nikkei 225 rose 1.8% to its highest finish since February 1990, when Japan’s bubble economy of inflated real estate and stock prices was beginning to deflate. Indexes in Europe, meanwhile, were mostly lower.

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