Stocks mixed after inflation data swings
NEW YORK — Several sharp reversals for stocks left Wall Street mixed on Tuesday after a report showed inflation is continuing to slow, but perhaps not as quickly or as smoothly as hoped.
The S&P 500 finished the day virtually where it started, edging down by less than 0.1 percent, after swerving between gains and losses. The Dow lost 156 points, or 0.5 percent, while the Nasdaq went on the widest run. It finished 0.6 percent higher after ricocheting between a loss of 1.1 percent and a gain of 0.9 percent.
The action was more decisive in the bond market, where yields climbed as investors braced for the Federal Reserve to get firmer on interest rates to combat inflation.
The report was highly anticipated because inflation and the Federal Reserve’s response to it have been at the center of Wall Street’s struggles for more than a year. Inflation has been cooling since a summertime peak, and investors are trying to guess how quickly a decline could happen to the Fed’s 2 percent target.
Tuesday’s report showed that inflation slowed to 6.4 percent in January from its peak of 9.1 percent in June. The hope on Wall Street has been for a continuing slowdown to get the Federal Reserve to pause its hikes to interest rates and perhaps begin contemplating cuts to them.
High rates can drive down inflation but also hurt investment prices and raise the risk of a severe recession. The Fed has already hiked its key short-term rate to a range of 4.50 percent to 4.75 percent up from virtually zero a year ago.
Nearly half of January’s month-over-month inflation came from an area where Fed Chair Jerome Powell has said he sees easing pressure in the pipeline: housing and other shelterrelated prices.
But on the downside for markets, the improvement in inflation wasn’t by as much as economists expected. That could encourage the Fed to be more aggressive on interest rates than it’s been saying. The Fed indicated it envisions at least a couple more increases before holding rates at a high level for a while.
“While inflation is heading in the right direction, there is a long and bumpy road ahead to price stability,” said Andrew Patterson, senior economist at Vanguard.
Even after ignoring the effects of prices for food and energy, which can swing more sharply than others, what’s called “core inflation” was still slightly higher than expected last month.
Such strength “suggests that the Fed has a lot more work to do to bring inflation back to 2 percent,” said Maria Vassalou, co-chief investment officer of multiasset solutions at Goldman Sachs Asset Management. “If retail sales also show strength tomorrow, the Fed may have to increase their funds rate target to 5.5 percent in order to tame inflation.”
Investors have been raising their forecasts for how high the Fed will take rates by the summer, and they’re now betting on a 19.2 percent probability that its key rate will top 5.5 percent in July. That’s up from just a 0.2 percent probability seen a month ago, according to CME Group.
The S&P 500 slipped 1.16 points to 4,136.13. The Dow fell 156.66 to 34,089.27, and the Nasdaq gained 68.36 to 11,960.15.