Market Snapshot: Dow books 526-point fall, stocks tumble after hot inflation reading puts focus on Fed rate hike pace

What drove the markets?

Stocks fell at the opening bell as investors reacted to the inflation reading, then trimmed or erased losses. But equities suffered another leg lower in early afternoon trade after St. Louis Federal Reserve Bank President James Bullard said he would like to see the fed-funds rate rise 100 basis points, or 1 percentage point, over the central bank’s three next policy meetings.

The year-over-year rate of U.S. inflation climbed again in January to 7.5% and stayed at a 40-year high, suggesting upward pressure on consumer prices is unlikely to relent in the near future. On a monthly basis, the consumer-price index rose 0.6% in January. Economists polled by The Wall Street Journal had forecast a 0.4% gain.

“We haven’t seen these kinds of rates of inflation since 1982,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, in a phone call. “The natural tendency is to sell out of high valuation stocks. But we are having a sort of push-and-pull.”

The S&P 500’s information technology sector led the declines, shedding 2.8%, while energy and financials, often considered inflation plays, were off less than 1%.

Stocks in recent weeks retraced a large chunk of a January selloff inspired by inflation fears and expectations for a more aggressive Fed, said Art Hogan, chief market strategist at National Securities, in a note.

But that January selloff had come as investors largely “baked in” a Fed interest rate rise in March, he said. While fed-funds futures markets on Thursday moved to more aggressively price in the potential for a half percentage point hike, that was largely playing catch-up to market psychology.

Mark Hulbert: The surprising twist in what rising inflation means for the stock market

Bullard, in a Bloomberg Television interview, backed an aggressive rate hike path that would deliver a full 100 basis points rise by July 1.

“Today’s CPI reading did not calm concerns about inflation, and instead we saw inflation continue to accelerate,” Matt Peron, Janus Henderson Investors’ director of research, wrote in emailed comments.

“This trend is worrisome for equity markets as it could mean a more aggressive Fed policy response, and that concern will typically pressure equity multiples. We caution that markets could remain choppy for the coming months until either inflation stabilizes or the market is comfortable that the Fed is doing enough, but not too much.”

And: High inflation has jacked up the cost of food, gas, cars and rent – and there’s little relief in sight

Treasury yields jumped about 10 basis points Thursday, with the 10-year Treasury note
TMUBMUSD10Y,
2.041%
topping the 2% threshold for the first time since 2019, trading at 2.028% in afternoon action.

Higher-than-expected inflation could keep pressure on interest-rate sensitive technology stocks, though some contend the hit already seen to some growth stocks has largely reflected the expected rise in rates. The Nasdaq Composite suffered its biggest percentage drop in almost two years last month, as well as its worst January in over a decade due to worries over inflation and tighter Federal Reserve monetary policy.

In other U.S. data, jobless claims fell 16,000 in latest week to 223,000.

What companies were in focus?

Affirm Holding Inc.
AFRM,
-21.42%
shares tumbled 21.2% Thursday after the buy-now pay-later company posted its earnings results more than an hour earlier than scheduled, showing lower-than-anticipated revenue but higher-than-expected volume.

Disney shares
DIS,
+3.35%
climbed 3.4% after the entertainment giant reported record revenue and a profit of more than $1 billion as it added streaming subscribers than expected over the holidays, theme-park profit surged.

Shares of Coca-Cola Co.
KO,
+0.56%
rose 0.5% after the beverage giant delivered results that topped expectations and saw sales rise.

Twitter Inc.
TWTR,
-1.98%
shares fell 2% after results largely met expectations and the social media company announced a new $4 billion buyback program.

Twillio Inc.
TWLO,
+1.93%
shares gained 1.9% after the cloud communication software group posted a strong outlook and earnings and sales that shot past Wall Street estimates.

Uber Technologies Inc. UBER stock rose after the ride-share operator reported forecast-beating profit and sales. Shares were halted for pending news in late morning action. At an analyst meeting, Uber said expects to expand its gross bookings by between 22% and 25% a year through 2024, with earnings before interest, taxes, depreciation and amortization, or Ebitda, expected to reach $5 billion in 2024. Shares fell 6.1% after the halt was lifted.

How did other assets do?

The ICE U.S. Dollar Index
DXY,
+0.22%,
a measure of the currency against a basket of six major rivals, rose 0.2%.

West Texas Intermediate crude for March delivery
CL.1,
+0.36%
CLH22,
+0.36%
 rose 0.3% to end at $89.58 a barrel. Gold futures for April delivery 
GC00,
-0.51%
GCJ22,
-0.51%
extended wins to a fifth day, settling at $1,837.40 an ounce.

Bitcoin
BTCUSD,
-0.84%
slumped 1.6%, reversing earlier gains.

The Stoxx 600 Europe 
SXXP,
-0.21%
fell 0.2%, while the FTSE 100 
UKX,
+0.38%
 gained 0.4%.

The Shanghai Composite 
SHCOMP,
+0.17%
 rose 0.1%, while the Hang Seng Index 
HSI,
+0.38%
gained 0.3% and Japan’s Nikkei 225 
NIK,
+0.42%
rose 0.4%.

—Barbara Kollmeyer contributed reporting