US stocks drifted astray on Wednesday as investors weighed the interest rate outlook after economic data showed strong consumer spending and a rebound in inflation in January.
The S&P 500 (^GSPC) plunged 0.2%, while the Dow Jones Industrial Average (^DJI) erased 90 points, or about 0.3%. The tech-heavy Nasdaq Composite (^IXIC) was an outlier, up 0.4%.
Retail sales topped estimates last month, Commerce Department data showed, stoking concerns that strong consumption combined with a higher-than-expected reading in consumer prices on Tuesday could keep the Federal Reserve on track. in an aggressive path.
The government said retail sales rose 3%, the biggest one-month increase since March 2021 and well above Bloomberg estimates of 1.9%.
“After a disappointing December, a rise in retail sales indicates that the enduring inflation we have experienced is not holding back the consumer,” Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Office of Global Investments, said in a note. . “Some volatility is expected in the near term as investors ponder the Fed’s next steps and what, if anything, might prompt it to cut rates in the calendar year.”
On the corporate side, investors scrutinized more earnings reports this week. Airbnb (ABNB) was in the spotlight after the lodging company posted record sales in the fourth quarter, achieving its first profitable year in 2022. Executives also released a better-than-expected forecast for the current quarter, citing strong post-pandemic travel demand. . Shares soared 13.8% on Wednesday afternoon.
Tesla (TSLA) shares rose 1.7% after Chief Executive Elon Musk said he plans to name a new chief executive officer for Twitter, the social media platform he acquired last year, by the end of the year. .
Separately, Bloomberg News reported Wednesday that the electric vehicle maker is expected to partially halt production at its China factory to make facility upgrades to make a facelifted version of its Model 3 car.
Devon Energy Corporation (DVN) shares fell nearly 12% after the company said fourth-quarter earnings were hurt by the impact of Winter Storm Elliot on its oil and gas wells.
In other areas of the market, bond yields rose on Wednesday, with the rate-sensitive two-year Treasury yield nearing the highest level since November, according to Bloomberg data. The US dollar index also rose against other currencies.
Meanwhile, in commodity markets, oil continued to fall as the dollar rose and US reserves were seen to have risen. West Texas Intermediate (WTI) crude futures, the US benchmark, fell 1% on Wednesday to trade around $78.
Wednesday’s moves come after a volatile earlier session in which all three major averages ended the day unchanged after the January Consumer Price Index (CPI) showed both hot and cold results.
Following the statement, several Fed officials indicated that interest rates would have to rise. On Tuesday, Dallas Fed President Lorie Logan said in remarks at Prairie View A&M University in Texas that the US central bank “must remain prepared to continue rate hikes for a longer period of time.” than anticipated”.
The CPI rose 0.5% in the first month of the year, an acceleration from the previous month, and 6.4% on a yearly basis, a small downward movement from the previous year-on-year print. Core CPI, which removes volatile food and energy components from the report, rose 0.4% from the prior month and 5.6% year-over-year, also higher than expected.
“There are increasing signs that the market is pricing in a no-landing scenario in which the economy remains strong and inflation remains tight and persistent,” Apollo Global Management chief economist Torsten Slok said in a note from the Wednesday, adding that one-year equilibrium inflation expectations are nearing 3%, buoyed higher by strong January jobs data and Tuesday’s CPI report.
“In response to this, the Fed will have to be more aggressive to ensure that inflation expectations do not stray too far from the FOMC’s 2% inflation target,” Slok added.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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