Inflation report knocks stocks down

Bond yields jump as investors watch Federal Reserve

NEW YORK — An eye-opening report on inflation that was hotter than expected slammed into the bond market on Wednesday, sending yields jumping, and helped knock stocks lower.

Prices for beef, electricity and other items that consumers paid in October surged from year-ago levels at the fastest overall pace since 1990, raising expectations in the market that the Federal Reserve will have to raise short-term interest rates more quickly off their record low. That sent Treasury yields to their biggest gains in months.

Rising yields tend to be a drag on stocks, particularly those seen as the most expensive or whose expectations for big profit growth is furthest in the future. Drops for several high-growth tech stocks weighed on Wall Street, as did a slide in energy stocks after a decline in the price of crude oil.

The S&P 500 went down 38.54, closing at 4,646.71, a second straight drop, though it’s coming off a string of setting a record high in each of eight straight days.

The Dow Jones Industrial Average closed at 36,079.94, down 240.04.

Worries about inflation were stoking other areas of the market. Gold rose 1 percent and is close to its highest price since June. Bitcoin, which some proponents see as also offering protection against inflation like gold, likewise climbed.

It touched a record of nearly $68,991, according to Coindesk.

The center of Wall Street’s action, though, was in the bond market.

Pushed by the inflation report, investors are now pricing in a 64 percent chance that the Fed will raise rates at least once by June. A day earlier, that probability was at 51 percent.

The Fed has been keeping overnight rates at a record low of nearly zero since March 2020 to resuscitate markets and the economy from the pandemic. The Fed has already begun to pare back on the bond purchases it makes every month to keep longer-term rates low.

The two-year Treasury yield tends to move with expectations for Fed action, and it leaped as high as 0.52 percent from 0.41 percent late Tuesday.

Longer-term Treasury yields also rose, with the 10year yield up to 1.57 percent from 1.43 percent.

Higher yields tend to favor stocks that look cheap. These are called “value” stocks as opposed to stocks of high-growth companies.