Wall Street’s major averages on Wednesday have seesawed between gains and losses through the day after an initial rally spurred by the latest consumer inflation report.
Into the final hour of trading, the tech-heavy Nasdaq Composite (COMP.IND) was down 0.49% to 11,972.45 points. The benchmark S&P 500 (SP500) had slipped 0.23% to 4,099.39 points, while the blue-chip Dow (DJI) was lower by 0.06% to 33,665.79 points. The latter two had earlier gained as much as 0.6% each.
Of the 11 S&P sectors, seven were trading in the red, led by Consumer Discretionary and Communication Services. Energy and Industrials topped the gainers.
The highly-anticipated consumer price index report for March showed that the headline number rose 5% Y/Y, slowing a full percentage point from a rise of 6% in February. Economists had expected an increase of 5.2%. However, core CPI – which excludes volatile food and energy prices – rose 5.6% Y/Y in March, in-line with expectations and higher than the 5.5% increase in February.
Markets initially reacted positively to the inflation data. However, that early momentum sputtered out as investors come to grips with the fact that, despite the moderation in the headline CPI number, it is not enough for the Federal Reserve to pause its rate-hiking campaign.
“The softer headline number was driven by a flat outturn for food prices, the softest reading since mid-2020,” JPMorgan’s Michael Feroli said.
“Energy prices declined 3.5%, a little more of a fall than we had penciled in. Within the core figures, core goods prices were up 0.2%, the firmest since last August, and perhaps a sign that the downdraft in pricing from improving supply chain performance is starting to wane—a development that was expected to occur sooner or later … While there are some things to like in today’s report, we don’t think it’s enough of a favorable surprise to get the Fed leadership to change its tune, and we still look for one more 25bp hike at the early May meeting,” Feroli added.
According to the CME FedWatch tool, markets are now pricing in a nearly 74% probability of a 25 basis point hike by the Fed’s monetary policy committee meeting in May, followed by a pause.
Meanwhile, San Francisco Fed President Mary Daly said in a prepared speech that the central bank may have to tighten policy further due to persistently high inflation and a still strong economy.
Furthermore, the minutes of the Fed’s monetary policy committee meeting in March showed that several officials considered pausing rate hikes in light of the recent banking crisis. The Fed staff also projected a “mild recession” starting later this year.
Turning to the fixed income markets, the longer-end 10-year yield (US10Y) was down 2 basis points to 3.41%, while the more rate-sensitive 2-year yield (US2Y) was lower by 9 basis points to 3.97%.
Outside of the CPI report, the economic calendar had several other items on Wednesday. MBA mortgage applications rose by 5.3%, versus a fall of 4.1% a week ago. Additionally, the Atlanta Fed’s business inflation expectations for the year-ahead decreased to 2.8%.
Among active stocks, airlines slipped after American Airlines (AAL) issued disappointing preliminary guidance.
Fortive (FTV) was the top percentage gainer on the S&P 500 (SP500) after a report that it bid $60/share for National Instruments (NATI).