Wall Street plunges as hot inflation sparks sell-off

WALL STREET’S main indexes tumbled on Tuesday after a higher-than-expected consumer inflation reading pushed back market expectations of imminent interest rate cuts, driving US Treasury yields higher.

The Dow Jones Industrial Average posted its biggest one-day percentage drop in nearly 11 months, after a Labor department report showed US consumer prices increased above forecasts in January amid a surge in the cost of shelter.

Markets have rallied this year on bets that the Fed would start trimming rates in May. The S&P 500 closed above 5,000 for the first time on Friday. The Dow is also trading near a record-high level, and on Monday the Nasdaq briefly surpassed its record closing high from November 2021.

After the release of the inflation data, bets by traders for a rate reduction in May of at least 25 basis points dropped to 36.1%, from about 58% before the data, while expectations for June stood at 74.3%, the CME FedWatch tool showed.

Rate-sensitive mega-caps like Microsoft, Alphabet, Amazon. com, and Meta Platforms fell between 1.6% and 2.2%, as yields on US Treasury notes across the board spiked to two-month highs.

Most chip stocks such as Micron Technology, Qualcomm, and Broadcom also dropped, sending the Philadelphia SE Semiconductor index down 2%.

Real estate, consumer discretionary and utilities led losses among the 11 major S&P 500 sector indexes, with real estate falling to a low of more than two months.

The small-cap Russell 2000 index also fell 4.3%, the biggest one-day drop since June 16, 2022.

The latest data comes on the heels of a modest revision to inflation in the last quarter of 2023 that left investors briefly relieved on the trajectory of inflation.

The Cboe volatility index, a market fear gauge, hit its highest level since November.

The S&P 500 lost 68.67 points or 1.37% to end at 4,953.17 points, while the Nasdaq Composite lost 286.95 points or 1.8% to 15,655.60. The Dow Jones Industrial Average fell 524.63 points or 1.35% to 38,272.75.

It marked Dow’s biggest oneday percentage loss since March 22, 2023.

Among top movers, JetBlue Airways soared 21.6% after activist investor Carl Icahn reported a 9.91% stake, adding that the carrier’s stock is “undervalued.”

Arista Networks shares fell 5.5% after the cloud solutions provider forecast current-quarter adjusted gross margin below expectations, while Marriott International lost ground after the hotel operator forecast annual profit below Street expectations.

Shares of software firm Cadence Design Systems dropped 4% following a bleak quarterly sales forecast, while toymaker Hasbro lost after a steeperthan-expected drop in holidayquarter sales and profit.

Tripadvisor stock jumped 13.8% as the online travel agency formed a special committee to evaluate deal proposals.

Declining issues outnumbered advancers by a 10-to-1 ratio on the New York Stock Exchange and a 4.9-to-1 ratio on the Nasdaq.

On US exchanges 12.9 billion shares changed hands compared with the 11.71 billion moving average for the last 20 sessions. —