Markets stumble as inflation proves unshakeable

Wall Street tumbled Thursday and stocks fell by the most in four weeks after more evidence that high inflation is staying stickier than expected.

The S& P 500 dropped 1.4% after a report said wholesale inflation slowed by less than economists forecast for January. The data echoed a report earlier this week on consumer prices that suggested inflation isn’t cooling as quickly and as smoothly as hoped.

The Dow Jones Industrial Average lost 1.3%, while the Nasdaq composite dropped 1.8%.

Stocks have been churning recently as worries about sticky inflation joust data suggesting the U.S. economy remains more resilient than feared. The worry is that persistently high inflation will push the Federal Reserve to get even more aggressive in lifting interest rates. Higher rates can drive down inflation, but also drag on investment prices and raise the risk of a serious recession.

Such fears have been most clear in the bond market, where yields have leaped this month as traders raise forecasts for how high the Fed will take interest rates.

The yield on the twoyear Treasury, which tends to track expectations for Fed action, rose to 4.67% from less than 4.60% before the inflation report’s release and from less than 4.10% earlier this month. It’s near its highest level since November, when the yield reached levels last seen in 2007.

Thursday’s wholesale inflation report showed prices were 6% higher in the 12 months through January. Albeit a slowdown from December’s annual rate, the gain was worse than economists expected. Perhaps more concerning was that inflation accelerated in January on a month-to-month basis, even after stripping out prices for food, energy and other layers.

The inflation report thudded onto Wall Street along with a batch of other data Thursday painting a mixed picture of the economy.

Fewer workers applied for jobless benefits last week than expected, a sign layoffs remain low across the economy. That’s good news for workers and another signal of strength for the job market, but the Fed worries it could also add upward pressure on inflation.

Other reports showed a measure of manufacturing activity in the mid-Atlantic region plunged this month, while housebuilders broke ground on fewer homes in January than economists expected.

Altogether, the reports cast some doubt on Wall Street’s hopes the Fed can manage to slow the economy just enough to stamp out inflation but not so much that it creates a severe recession. Hopes for such a “soft landing” nevertheless remain firmly in the market, with the S&P 500 still up 6.5% since the start of the year.

“I would go further and say ‘no landing,’” said Nate Thooft, senior portfolio manager at Manulife Investment Management. “It’s almost as if there’s no softness perceived, or it’s so minimal that it’s not really viewed as recessionary at all.”

Big technology and highgrowth stocks led the overall market lower Thursday, partly because the companies are seen as some of the most vulnerable to higher interest rates. In earlier years, tech stocks shot higher partly because of record-low interest rates.

A 2.7% fall for Microsoft Corp., 3.3% drop for Nvidia Corp. and 4.7% slide for Tesla Inc. were some of the heaviest weights on the S&P 500.

All told, the S& P 500 fell 57.19 points to 4,090.41. The Dow fell 431.20 points to 33,696.85, and the Nasdaq dropped 214.75 points to 11,855.84