Wall Street Slides as Inflation Data Crimps Rate Cut Bets

A Labor Department report showed producer prices increased more than expected in January, feeding fears inflation was picking up after months of cooling.

The data could encourage the Fed to wait before cutting rates. Earlier this week, a hot consumer prices report sparked a selloff in equity markets although a slump in January retail sales on Thursday stoked hopes of rate cuts.

"The inflation data this week are definitely going to keep the Fed at least on pause until summer," said Carol Schleif, chief investment officer at BMO family office. "Data is bumpy, it's not a straight line."

Treasury yields spiked after the report as traders added to bets that the Fed may defer the first rate cut until after June.

"The theme of higher for longer is really the continuing market narrative" for interest rates, said Greg Bassuk, Chief Executive Officer at AXS Investments.

Two Fed officials set the tone for caution. Atlanta Fed President Raphael Bostic said he needed more evidence that inflation pressures are falling, but is open to lowering rates at some point in the next few months. San Francisco Fed President Mary Daly said "there is more work to do" to ensure stable prices, despite remarkable progress.

According to preliminary data, the S&P 500 lost 24.18 points, or 0.49%, to end at 5,005.15 points, while the Nasdaq Composite lost 132.38 points, or 0.83%, to 15,775.65. The Dow Jones Industrial Average fell 149.48 points, or 0.39%, to 38,623.64.

Most megacap stocks dropped, with Meta Platforms falling and dragging the S&P 500 communication services index down.

Robust corporate earnings and surging enthusiasm around artificial intelligence has helped the S&P 500 close above the 5,000-point mark for the fourth time this year.

Applied Materials jumped after the semiconductor equipment supplier forecast better-than-expected second-quarter revenue on strong demand for advanced chips used in AI.

Vulcan Materials gained after forecasting a higher full-year profit, aiding a rise in the S&P 500 materials sector index.

Roku slumped after forecasting a bigger first-quarter loss, while crypto exchange Coinbase Global jumped on posting its first quarterly profit since 2021.

DoorDash dropped as the delivery firm forecast a quarterly profitability metric below expectations, hurt by higher labor costs.