Stocks opened sharply lower Tuesday after the latest inflation data came in hotter than anticipated – all but guaranteeing the Fed will not cut interest rates at its March meeting.
Ahead of the opening bell, the Bureau of Labor Statistics said the Consumer Price Index (CPI) was up 0.3% month-over-month in January and 3.1% year-over-year. Both figures were higher than the 0.2% and 2.9% respective increases economists were expecting.
Core CPI, which excludes volatile food and energy prices, also came in above forecasts, rising 0.4% on a monthly basis and 3.9% on an annual one.
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The data makes it all but certain that the Federal Reserve will keep its federal funds rate unchanged at its next meeting in March. Expectations for a May rate cut declined after the January CPI report too.
According to CME Group’s FedWatch Tool, futures traders are now pricing in a 35% chance the Fed will cut rates by a quarter of a percentage point, down from 52% one day ago. The odds of a June rate cut have jumped to 51% from 42% yesterday.
“A market that forcefully expected earlier easing – fortified by a series of rate cuts throughout the year – has had to digest not just a barrage of consistent Fedspeak, but the stark reality that the Fed can still not declare victory on its long campaign to quell inflation,” says Quincy Krosby, chief global strategist for LPL Financial. “Even though rate cuts will probably begin in 2024, it’s not if but when, the last mile is getting longer.”
Icahn acquires major stake in JetBlue Airways
In single-stock news, JetBlue Airways (JBLU) surged 21.6% after a regulatory filing revealed Carl Icahn bought 33.4 million shares of the industrial stock, taking a 9.9% stake. According to the filing, Icahn acquired the position because he believes JBLU is “undervalued” and represents “an attractive investment opportunity.”
Additionally, the filing indicates the billionaire investor has discussed “the possibility of board representation” with JetBlue’s management and board of directors.
Heading into today’s session, JBLU stock was down more than 54% on a year-over-year basis. However, shares are up more than 40% since the discount airline’s proposed merger with Spirit Airlines (SAVE, -5.1%) was blocked in mid-January by a federal judge.
Coke keeps benefiting from rising prices
On the earnings calendar, Coca-Cola’s (KO, -0.6%) results drew plenty of attention. The soft drinks maker reported in-line fourth-quarter earnings of 49 cents per share on higher-than-expected revenue of $10.9 billion. The company also said unit volumes were up 2% year-over-year, while prices increased 9%.
“Coca-Cola’s results benefited, in part, from an ongoing post-pandemic uptick in consumers splurging on entertainment, such as sporting events and movies,” says José Torres, senior economist at Interactive Brokers. “The company has passed higher input costs on to customers by raising prices, a change that has been accepted by consumers as they splurge on entertainment.”
As for the main indexes, the Dow Jones Industrial Average slumped 1.4% to 38,272 and the S&P 500 fell 1.4% to 4,953. The rate-sensitive Nasdaq Composite performed the worst of the three, spiraling 1.8% to 15,655 as the yields on the 2-year and 10-year Treasury bonds jumped to levels not seen since mid-December.
