After an initial surge triggered by the most recent consumer inflation statistics, the major moving averages on Wall Street fluctuated between gains and losses on Wednesday.
The tech-heavy Nasdaq Composite (COMP.IND) was down 0.49% to 11,972.45 points by the end of trading. The blue-chip Dow (DJI) was down 0.06% to 33,665.79 points and the benchmark S&P 500 (SP500) was down 0.23% to 4,099.39 points. Each of the latter two had previously increased by up to 0.6%.
Seven of S&P’s 11 sectors were down, with communications services and consumer discretionary leading the way. Industrials and energy were the top gainers.
The much-anticipated CPI report for March showed the headline was up 5% Y/Y, slowing a full percentage point from a 6% rise 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 ahead of February’s 5.5% gain.
The markets initially reacted positively to the inflation data. However, that initial momentum fizzled as investors grappled with the fact that despite the moderation in CPI readings, it is not enough for the Federal Reserve to pause its rate hike campaign.
“The softer headline figure was driven by a flat read in food prices, the weakest reading since mid-2020,” said JPMorgan’s Michael Feroli.
“Energy prices fell 3.5%, a slightly larger fall than we had indicated. Within the core numbers, core commodity prices rose 0.2%, the strongest since last August, and perhaps a sign that the price drop comes from improving supply Chain performance is starting to slow down – a development that was expected sooner or later… While today’s report has a few things to like, we don’t think it’s an upside surprise enough to make the Fed’s leadership do anything about it and we’re still looking for another 25 basis point hike into the session opener May,” added Feroli.
According to the CME FedWatch tool, markets are now pricing in a nearly 74 percent chance of a 25 basis point hike before the Fed’s monetary policy committee meeting in May, followed by a pause.
Meanwhile, San Francisco Fed Chair Mary Daly said in a prepared speech that persistently high inflation and a still-strong economy may require the central bank to tighten further.
In addition, minutes of the March Fed Monetary Policy Committee meeting showed that several officials were considering suspending rate hikes amid the recent banking crisis. The Fed staff also forecast a “mild recession” that would begin later this year.
As for bond markets, the longer-end 10-year yield (US10Y) fell 2 basis points to 3.41%, while the more interest rate-sensitive 2-year yield (US2Y) declined 9 basis points to 3.97%.
Outside of the CPI report, Wednesday’s economic calendar had several other entries. MBA mortgage applications rose 5.3% from a 4.1% decline a week ago. In addition, the Atlanta Fed’s inflation expectations for the coming year declined to 2.8%.
Among active stocks, airlines slid after American Airlines (AAL) released disappointing preliminary guidance.
Fortive (FTV) was the biggest gainer by percentage on the S&P 500 (SP500) after it was announced that it bid $60/share for National Instruments (NATI).