US close: Dow tumbles as inflation tops forecasts

By Sharecast News

Sharecast News | 13 Feb, 2024

Updated : 21:35

16:00 22/11/24

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Stocks on Wall Street fell through to the closing bell on Tuesday, with the Dow posting its most significant decline since March last year as investors grappled with a January inflation report that exceeded expectations.

At the close, the Dow Jones Industrial Average was down 1.35%, closing at 38,272.75 points, while the S&P 500 saw a decline of 1.37%, ending the day at 4,953.17 points.

The tech-heavy Nasdaq Composite faced the most substantial setback, dropping 1.8% to settle at 15,655.60 points by the end of the trading session.

In currency markets, the dollar was last 0.03% stronger on sterling to trade at 79.43p, while it remained stable against the common currency at 93.38 euro cents, and decreased 0.11% on the yen, changing hands at JPY 150.63.

“On Tuesday, world stock market indexes dropped like hot potatoes, the US dollar surged to three-month peaks, and Treasury yields climbed the ladder after consumer prices in the United States came in at a much brisker-than-expected rate in January,” said SPI Asset Management managing partner Stephen Innes.

“The harsh data set surprised many investors, serving as a stark reminder of the persistent inflationary pressures in the economy.

“This came as a bitter pill for those who may have interpreted the relatively benign annual inflation revisions released last week as something akin to an all-clear.”

Hot consumer inflation sours hopes for a rate cut

At the top of the agenda was fresh data from the Bureau of Labor Statistics, which revealed that inflation surged at a faster pace than anticipated in January, driven largely by escalating shelter prices.

The US consumer price index (CPI) climbed 3.1% year-on-year, reaching 308.417, marking a slight moderation from December's 3.4% increase but surpassing market projections of a 2.9% uptick.

On a monthly basis, headline inflation rose by 0.3%, outpacing expectations of a 0.2% rise.

Excluding volatile food and energy prices, core CPI experienced a 0.4% uptick last month and stood at 3.9% higher than the previous year.

Forecasts had predicted a 0.3% increase and a 3.7% year-on-year rise, respectively.

Shelter prices, constituting about one-third of the CPI weight, emerged as the primary driver of the increase, surging by 0.6% in January and contributing over two-thirds of the headline rise.

Meanwhile, food prices also saw an uptick, rising by 0.4% during the month.

Conversely, energy prices experienced a decline, offsetting increases elsewhere, with a notable 0.9% drop, primarily attributed to a 3.3% decrease in gas prices.

“January consumer price inflation falling less than expected was enough of a catalyst to cut the equity rally short, push yields and the US dollar to two-month highs,” said IG senior market analyst Axel Rudolph.

“Hopes for a Fed March rate cut have all but disappeared with the market now pricing in a 53% probability of a first cut being seen in June.”

Avis Budget tumbles on earnings, JetBlue springs higher

In equity markets, Avis Budget Group tumbled 22.9% after the car rental giant reported disappointing fourth-quarter results.

The Coca-Cola Company saw a slight decrease of 0.59% despite posting quarterly sales that exceeded estimates, driven by higher prices.

Toy giant Hasbro slid 1.35% after its earnings fell short of estimates, while its forward guidance disappointed investors.

Similarly, hotel chain Marriott International missed revenue expectations despite beating earnings estimates in its latest quarterly report, sending its shares 5.59% lower.

On the upside, JetBlue Airways spiked 21.58% after activist investor Carl Icahn revealed a near-10% stake in the company.

Icahn described JetBlue's stock as undervalued, as the airline grappled with profitability challenges and after its proposed merger with Spirit Airlines was blocked by federal regulators.

Reporting by Josh White for Sharecast.com.

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