Wall Street was rocked by signs of stubborn inflation on Wednesday, with stock prices falling and yields on Treasury bonds, which support interest rates across the economy, soaring.
The S&P 500 fell more than 1 percent for the second time this month and only the fifth time this year. Other major indexes, including the tech-heavy Nasdaq Composite and the Russell 2000 index of smaller companies, also fell.
The sharp moves followed a hotter-than-expected consumer inflation report. Prices rose 3.5 percent in March from a year earlier, marking another month of stubbornly high inflation. That made it harder for investors to ignore earlier signs that progress in cooling inflation was patchy.
“The stalled disinflationary narrative can no longer be described as a blip,” said Seema Shah, chief global strategist at Principal Asset Management.
That means the Federal Reserve could keep interest rates – the central bank’s main tool for fighting inflation – higher for longer.
Bets for a June rate cut have fallen since the data was released, pushing back the first expected cut later in the year. In January, investors still believed that the Fed could cut interest rates as early as March.
So far this year, the fading prospects of interest rate cuts, which would be seen as supportive for the stock market, have not derailed the huge rally that has taken place in recent months. But some analysts wonder how long this can last, as higher interest rates eventually put pressure on consumers and put more pressure on corporate profits.
The two-year Treasury yield, sensitive to changes in interest rate expectations, shot toward 5 percent on Wednesday, a threshold it hasn’t exceeded since November.
“The Fed is not done fighting inflation and interest rates will remain high for much longer,” said Torsten Slok, chief economist at investment giant Apollo, adding that he does not expect any rate cuts this year.
Although many investors noted that the economy remained resilient, the new inflation numbers appeared to cloud the outlook just as Fed officials had begun to gain confidence in their ability to push inflation closer to their 2 percent target .
Lindsay Rosner, head of cross-sector investing at Goldman Sachs Asset Management, said the data did not “eclipse” the Fed’s confidence.
“It did cast a shadow over it, though,” she said.
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2024-04-10 21:43:48
www.nytimes.com
