Stocks Decline as Inflation Report Raises Concerns of Delayed Fed Rate Cuts
The stock market experienced a decline on Friday as another hot inflation report raised concerns about the timing of Federal Reserve rate cuts. The S&P 500 fell by 0.4%, while the Dow dipped 114 points, or 0.3%. The Nasdaq Composite also slid by 0.7%.
The producer price index (PPI) for January, which measures wholesale inflation, increased by 0.3%. This was higher than the anticipated gain of 0.1% predicted by economists polled by Dow Jones. When excluding food and energy, the core PPI rose by 0.5%, surpassing the expected 0.1% advance.
Following the release of the PPI reading, the 10-year Treasury yield surged above 4.3%, and the 2-year Treasury yield reached its highest level since December, topping 4.7%.
This week has been a roller coaster ride for stocks as investors carefully analyze the direction of the U.S. economy and speculate on when the Federal Reserve will decide to lower rates. On Tuesday, the Dow experienced its largest daily decline in nearly a year after the consumer price index (CPI) for January came in at 3.1%, exceeding the expected 2.9% predicted by economists.
Despite the initial shock, the market rebounded over the next two days, with the S&P 500 closing at yet another record high on Thursday. However, Friday’s wholesale inflation report added to concerns that the Fed may delay rate cuts until later in the year.
Greg Bassuk, chief investment officer at AXS Investments, warned investors to brace for more near-term volatility. He explained that the market’s fluctuations reflect a tug-of-war between high sticky inflation, which suggests no immediate rate cuts, and strong earnings and other indicators of a robust economy, which instill confidence in investors that there is more growth ahead for stocks. Bassuk stated, “Investors are reacting this week from original confidence that rate cuts would start in the first half of the year, and it’s looking more likely that the Fed will delay until the second half.”
After all the volatility, the S&P 500 is down 0.3% for the week. The Dow is expected to close around the flatline, while the Nasdaq is 1.2% lower.
In other news, Nvidia, a popular artificial intelligence (AI) company, saw its shares rise on Friday following an optimistic call from a Wall Street analyst. Loop Capital predicted that Nvidia’s stock could eventually surpass $1,200.
On the other hand, food delivery service DoorDash experienced a 13% drop in its shares due to a wider-than-expected loss. However, digital advertising company Trade Desk saw a 16% increase in its shares after surpassing analysts’ fourth-quarter revenue estimates and providing a positive outlook for the first quarter.
Overall, the stock market’s decline on Friday reflects concerns about delayed Federal Reserve rate cuts due to higher-than-expected inflation. Investors should prepare for more volatility in the near future as they navigate the balance between inflation and a strong economy.