‘Embers of inflation’ singe Wall Street

Stocks fall, yields up as report revives fears of high Fed rates

NEW YORK — A washout on Wall Street sent stocks sinking Wednesday, as worries rose that what seemed like a blip in the battle to bring down inflation is turning into a troubling trend.

The S&P 500 dropped 0.9 percent, and the majority of stocks within the index fell. The Dow Jones Industrial Average tumbled 422 points, or 1.1 percent, and the Nasdaq composite sank 0.8 percent

Treasury yields also leaped in the bond market after a report showed inflation was hotter last month than economists expected. It’s the third straight report to suggest progress on bringing high inflation down might be stalling.

“There are still embers of inflation here and there in the economy,” said Joe Davis, chief global economist at Vanguard.

For shoppers, that’s painful because of the potential for even higher prices at the store. For Wall Street, it raises fears that the Federal Reserve will hold back on delivering the cuts to interest rates that traders are craving.

The S&P 500 had leaped more than 20 percent since Halloween in part on expectations that the Federal Reserve would lower its main interest rate, which is sitting at its highest level in more than two decades.

But the Fed has been waiting for more evidence to show inflation is heading sustainably down toward its goal of 2 percent. After an encouraging cooling last year, the fear is that inflation might be stuck after January’s, February’s and March’s inflation reports all came in hotter than expected.

“Two data points don’t make a trend, but maybe three do,” said Brian Jacobsen, chief economist at Annex Wealth Management.

“If we get one more reading like this, Fed chatter will shift from when to cut to whether to hike.”

Prices for everything from bonds to gold fell after the morning’s release of the inflation data.

The yield on the 10-year Treasury jumped to

4.54 percent from 4.36 percent late Tuesday and is back to where it was in November. The two-year yield shot even higher and rose to 4.97 percent from 4.74 percent.

Wall Street’s biggest losers on Wednesday included real estate investment trusts, utility companies and other stocks that tend to get hurt most by high interest rates.

The S&P 500 fell 49.27 points to 5,160.64. The Dow dropped 422.16 to 38,461.51, and the Nasdaq composite fell 136.28 to 16,170.36.