US stocks fell on Friday after the Federal Reserve’s most-watched inflation measure came in stronger than expected, in another sign that price pressures have turned persistent into 2023.
The S&P 500 (^GSPC) sank 1.1%, while the Dow Jones Industrial Average (^DJI) fell more than 300 points, or 1%. The tech-heavy Nasdaq Composite (^IXIC) fell 1.7%. Friday marked the worst week for the S&P 500 and Nasdaq since December.
US Treasury yields rose after the reading. The 2-year bond rose 12 basis points to 4.81%, while the 10-year bond gained 7 basis points to 3.95%.
The personal consumption expenditures (PCE) price index, the Fed’s preferred assessment of how quickly prices rise in the economy, rose 0.6% in January and 5. 4% compared to last year. On a “basic” basis, which excludes the volatile food and energy components, prices rose 0.6% for the month and 4.7% from a year ago.
The Commerce Department report also showed that consumer spending rose 1.8% last month from December after falling the previous month.
The numbers support recent indications that inflation is not falling at the pace and to the extent that investors expected, even as prices have stabilized from the peaks of the current inflation cycle.
“The first CPI for December was revised up, and now every January reading surprised to the upside. Inflation is like an old boyfriend or girlfriend that keeps showing up when you don’t want to see them,” David Russell, TradeStation’s vice president of market intelligence, said in a note.
In individual stock moves, Block (SQ) rose 4.3% after the payment processor reported fourth-quarter financial results in which earnings and revenue beat expectations.
Shares of Warner Bros. Discovery (WBD) fell 1% after the media giant posted a large loss of revenue for the last three months of the year.
Boeing (BA) shares closed down 4.8% after the airline maker said it halted deliveries of its 787 Dreamliner jets due to a documentation issue.
Beyond Meat (BYND) shares rose 10% after better-than-expected earnings and CEO Ethan Brown said the company is seeing progress in its efforts to reduce costs and manufacturing hurdles.
The embattled used car retailer (CVNA) plunged 20.5% after reporting a net loss that was nine times higher in the fourth quarter.
The bumpier-than-expected path to restoring price stability and strong economic data to start the year (nonfarm payrolls rose 517,000 in January, while retail sales rose 3%) have prompted investors to readjust expectations around the way forward for interest rates, putting a dent in recent market momentum.
The S&P 500 snapped a four-day losing streak on Thursday as shares closed higher. But earlier this week, on Tuesday, stocks had their worst day of the year.
“Equity bulls and even Chairman Powell have bragged about anchored inflation expectations and how consumers and investors believe it’s moving in the right direction,” said Morgan Stanley Chief Investment Officer Lisa Shalett. , in a note earlier this week, noting that the January consumer price index (CPI) and producer price index (PPI) raised questions about whether inflation progress is stalling.
“Given the cross-streams of data, the central bank must tread carefully. Investors who are still betting on a Fed put option or a quick return to financial repression are likely to be wrong this time,” Shalett said. “The Fed’s credibility is at stake, and it is likely to risk overreaching rather than giving up the fight against inflation too soon.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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