Stan Cho, Associated Press
9 minutes ago
People walk past the New York Stock Exchange on Wednesday, April 10, 2024, in New York. Wall Street rose ahead of the latest government information on U.S. inflation that could influence the Federal Reserve’s next interest rate decision. (AP Photo/Peter Morgan)
NEW YORK (AP) — U.S. stocks are falling Wednesday on worries that what appeared to be a blip in the fight to rein in inflation is turning into a trend.
The S&P 500 fell 1.1% in early trading, marking one of the worst days of the year so far. As of 9:35 a.m. ET, the Dow Jones Industrial Average was down 451 points, or 1.2%, and the Nasdaq Composite Index was down 1.1%.
Bond markets also saw U.S. Treasury yields soar after reports that inflation last month was higher than economists had expected, putting pressure on stocks. This is the third consecutive report to suggest that progress towards curbing high inflation may be stalling.
“There are still embers of inflation in many parts of the economy,” said Joe Davis, Vanguard’s chief global economist.
That’s a pain for shoppers, as in-store prices could be even higher. This is painful for Wall Street. That’s because the Federal Reserve could become reluctant to deliver the interest rate cuts that traders are so eager to bet on.
The S&P 500 had already risen more than 20% since Halloween, partly on expectations that the Federal Reserve would cut its key interest rate, which is at its highest level in more than 20 years. These cuts would ease pressure on the economy and encourage investors to pay higher prices for stocks, bonds, cryptocurrencies and other investments.
But the Fed is waiting until there is more evidence that inflation is falling sustainably toward its 2% goal. Last year saw an encouraging cooling, but now there are concerns that inflation could stagnate after higher-than-expected inflation reports and broader economic indicators in January, February and March. There is.
“Two data points don’t form a trend, but three probably do,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“If we get another reading like this, the conversation at the Fed will shift from when to cut rates to whether to raise rates.”
Shortly after the release of the U.S. Consumer Price Index report this morning, prices for everything from bonds to Bitcoin to gold fell.
The yield on the 10-year U.S. Treasury rose to 4.47% from 4.36% late Tuesday. Two-year Treasury yields, driven largely by expectations of Fed action, rose further. It rose from 4.74% to 4.93%.
Traders have sharply reduced their expectations that the Fed could start cutting interest rates in June. That probability now stands at 25%, down from nearly 74% a month ago, according to CME Group’s FedWatch tool. Perhaps more importantly, it was only twice this year that traders shifted their bets further toward a Fed rate cut. At the beginning of the year, it was predicted that more than six locations would be cut by 2024.
High interest rates slow the economy and reduce inflation by lowering investment prices. The fear is that if interest rates remain too high for too long, they could trigger a recession.
Critics were already saying that the U.S. stock market looked expensive by many measures. To make stock prices look more reasonable, interest rates needed to be lowered or corporate profits restored. Wall Street’s hope is that a resilient U.S. economy could support profits, even if hopes for interest rate cuts fade.
As major U.S. companies line the runway to announce how much profit they made in the first three months of the year, Delta Air Lines kicks off the reporting season with stronger-than-expected results. did.
The company said there is strong demand for air travel around the world and that it expects this strength to continue into the spring. The company’s stock rose 3.4%, with other airline stocks also rising in tandem.
The banking industry will soon be in the spotlight with earnings season. JPMorgan Chase & Co. and Wells Fargo Co. are among those to be announced Friday.
Wall Street’s biggest losers included real estate investment trusts, utility companies and other stocks that tend to be hit hardest by high interest rates. Real estate stocks in the S&P 500 index fell 3%, the biggest loss of the 11 sectors that make up the index.
In overseas stock markets, indexes fell in most of Europe. In Asian trading, stocks rose 1.9% in Hong Kong but fell 0.7% in Shanghai after Fitch Ratings downgraded its outlook for China’s finances.
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AP Business Writers Matt Ott and Elaine Kurtenbach contributed.
