US stock market dips on inflation concerns and rate cut speculations

Feb 17, 2024

Wall Street

witnessed a decline in stocks on Friday following a report indicating

producer prices

had risen more than anticipated in January, casting doubt on the Federal Reserve’s imminent interest rate reductions. The Labor Department’s report highlighted an unexpected increase in producer prices, stoking fears of a resurgence in inflation after a period of perceived cooling.

This development could prompt the Federal Reserve to postpone rate cuts, a possibility further underscored by a recent surge in consumer price inflation and a decline in January retail sales, which had initially fueled rate cut hopes.

Carol Schleif, BMO family office’s chief investment officer, remarked, “The inflation data this week are definitely going to keep the Fed at least on pause until summer. Data is bumpy, it’s not a straight line.” Following the inflation report, Treasury yields saw a significant increase, with traders adjusting their bets towards a delay in the Federal Reserve’s rate cut, potentially pushing it past June. “The theme of higher for longer is really the continuing market narrative,” noted Greg Bassuk, CEO of AXS Investments, regarding interest rates.

Federal Reserve officials have expressed a cautious stance. Atlanta Fed President Raphael Bostic mentioned a need for further evidence of diminishing inflation pressures before considering rate reductions, while San Francisco Fed President Mary Daly emphasized the ongoing necessity to stabilize prices despite significant progress.

Market performance on Friday reflected these sentiments, with the S&P 500 dropping by 0.49%, the Nasdaq Composite by 0.83%, and the Dow Jones Industrial Average by 0.39%. Notably, most megacap stocks experienced declines, particularly impacting the S&P 500 communication services index.

Contrasting these downturns, certain sectors showed resilience due to robust corporate earnings and growing enthusiasm around artificial intelligence, aiding the S&P 500 in surpassing the 5,000-point threshold for the fourth time this year. Companies like Applied Materials and Vulcan Materials reported positive outlooks, contributing to sector gains, while others like Roku and DoorDash faced challenges.

This week’s inflation reports have reshaped investor expectations, with the Federal Reserve’s rate decisions highly anticipated as markets and policymakers navigate through economic uncertainties.

(With inputs from agencies)

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