Stocks finished sharply lower Wednesday following a hotter-than-expected March inflation report that has likely trashed the market's forecasts for near-term rate cuts and the longer-term trajectory for consumer price pressures.
The Dow Jones Industrial Average tumbled 422 points, or 1.09%, to 38,461.51, while the S&P 500 gave up 0.95% to 5,160.64 and the tech-heavy Nasdaq slipped 0.84% to 16,170.36.
The Commerce Department's March inflation report showed a quickening in both headline and core price pressures that topped Wall Street forecasts.
The headline rate of 3.5% was well ahead of estimates, as was the 3.8% reading for core prices. The CME Group's FedWatch now suggests just a 28% chance of a June rate cut, down from around 51% from prior to the data release.
Charlie Ripley, senior investment strategist for Allianz Investment Management the inflation data surprised to the upside for the third month in a row “with both headline and core CPI coming in at 0.4% for the month of March.”
“Looking at the details, the stickiness was broad based and certainly not welcomed by the Fed, who has initially signaled intentions of commencing rate cuts this year,” he said. “Given this is the third month of higher-than-expected inflation data, it is becoming harder to argue that seasonality is the dominant factor. “
In addition, Ripley noted that super core inflation, a measure that Fed Chair Jerome Powell has highlighted in the past, came in at 0.65% and was up from February’s data.
“Overall, the strong inflation data at a minimum takes the June rate cut off the table for the Fed and should force the Fed to go back to the drawing board with regards to their monetary policy ambitions for the year,” he said.
“The next potential opportunity for a rate cut is likely not going to be until after the summer and given the trajectory of the economy, the uncertainty around monetary policy is going to remain high for the foreseeable future," Ripley added.
Updated at 1:10 PM EDT
Ugly Auction
The Treasury sold $39 billion in re-opened 10-year notes at the highest yields since early November yet saw slumping demand from foreign and domestic investors following today's hot March inflation report.
The sale drew bids worth just over $91.2 billion, generating a demand ratio of around 2.34, down from the 2.51 level recorded last month.
Dealers were forced to take around 24% of the sale, a huge increase from the 20% level last month and the ten-auction of 15%, as foreign investors backed-away from the auction even with the richer overall yields.
Stocks extended declines following the sale, with the S&P 500 down 67 points, or 1.31%, while the Nasdaq slumped 197 points, or 1.2%. The Dow was last marked 560 points lower.
That's quite the tail. Crap 10-year auction. Rates pushing up to 4.559%
— Markets & Mayhem (@Mayhem4Markets) April 10, 2024
- US 10-Year Note High Yield Actual 4.56% (Forecast -, Previous 4.166%)
- US 10-Year Note Bid-to-Cover Actual 2.34 (Forecast -, Previous 2.510)
- Treasury WI 10y yield 4.529% before $39 billion auction pic.twitter.com/rQLsboVGO4
Updated at 11:18 AM EDT
Pay-up
Mortgage rates climbed past the 7% mark last week, according to data published Wednesday by the Mortgage Bankers' Association, and are likely to accelerate further into the spring following today's spike in 10-year bond yields that has the benchmark paper trading north of 4.5%.
In November of last year, when 10-year yields were last trading at that level, the average rate on a 30-year fixed rate was pegged at around 7.4% to 7.5%
Updated at 9:40 AM EDT
Big slide
The S&P 500 gave back around 55 points, or 1.07%, in the opening minutes of trading, while the Dow was marked 475 points in the red. The rate-sensitive Nasdaq, meanwhile, fell 168 points, or 1.04%.
"A third-straight hotter-than-expected CPI may have been the final nail in the coffin for a June rate cut, but it remains to be seen whether 2024 will turn out to be a two-cut year, or something less," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley.
"The other question is whether the stock market will see this as more than a 'bump' in the inflation road," he added. "We’ve seen sharp moves after other CPI surprises reversed in a day or two, but if today’s reaction in the pre-market is any indication, the recent volatility may not have run its course."
S&P 500 Opening Bell Heatmap (Apr. 10, 2024)$SPY -1.12% 🟥$QQQ -1.05% 🟥$DJI -1.18% 🟥$IWM -2.41% 🟥 pic.twitter.com/MZMYeZq9fw
— Wall St Engine (@wallstengine) April 10, 2024
Updated at 9:20 AM EDT
Bond market re-set
Benchmark 10-year Treasury note yields surge more than 16 basis points, to trade past the 4.5% mark for the first time since mid-November, ahead of what now may be a challenging $39 billion auction of new notes by the Treasury later in the session.
The yield surge, which has lifted 2-year notes to around 4.95%, followed the hotter-than-expected March inflation report and a big reduction in bets on a June Fed rate cut.
Fed's Barkin (voter) and Foolsbee (non-voter) speak this afternoon at a panel, followed by 10 year auction at 1pm and then the Fed minutes at 2pm.
— Craig Shapiro (@ces921) April 10, 2024
Will be interesting to hear how these guys react to this hotter than expected number which makes three in a row.
Then we will have…
Updated at 8:44 AM EDT
New Rate Reality
Fed rate cut bets were slashed in early Wednesday trading after the Commerce Department's March inflation report showed a quickening in both headline and core price pressures that topped Wall Street forecasts.
The headline rate of 3.5% was well ahead of estimates, as was the 3.8% reading for core prices. The CME Group's FedWatch now suggests just a 28% chance of a June rate cut, down from around 51% from prior to the data release.
U.S. stocks were turned sharply lower following the data release, with futures tied to the S&P 500 indicating an opening bell decline of 75 points while those tied to the Dow suggest a 4365 point slump. The Nasdaq is called 272 points lower.
Benchmark 10-year Treasury note yields surged 14 basis point following the data release to change hands at 4.487% while 2-year notes were pegged at 4.892%, around 10 basis point higher from prior to the data release.
March CPI #inflation +3.5% year/year vs. +3.4% est. & +3.2% in prior month … core +3.8% vs. +3.7% est. & 3.8% prior pic.twitter.com/4JrfqZyZ4B
— Liz Ann Sonders (@LizAnnSonders) April 10, 2024
Stock Market Today
Global markets are laser-focused on the Commerce Department's March inflation report, which is expected to show a modest easing in core price pressures set against a quickening of the headline pace as the economy continues to outperform and energy prices extend their year-to-date gains.
The core CPI rate, which strips out volatile components such as food and energy, is forecast to rise 0.3% from February and accelerate 3.7% for the year.
A faster-than-expected reading could compel markets to push back bets on a June Federal Reserve interest rate cut and challenge the broader assumption of around three reductions between now and the end of the year.
The Fed will also publish minutes of its March policy meeting at 2 pm Eastern Time in Washington, with investors looking for clues as to how central bank officials see their rate-cut projections evolving over the coming months.
The CME Group's FedWatch suggests a 50.8% chance of a quarter-point rate cut in June, down from around 64% prior to the Fed's March meeting.
Getty
Treasury bond yields have risen notably over the past three weeks as Fed officials push back on rate-cut bets and employment data continue to suggest a robust labor market and edged lower in overnight dealing amid reports of a massive futures bet on a softer inflation print.
Benchmark 10-year note yields were marked 3 basis points lower heading into the New York trading session at 4.361%, with traders also eyeing $39 billion of new notes to be sold later in the afternoon.
Related: Inflation report will disappoint markets (and the Fed)
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.07% lower at 104.071.
A handful of stocks were also on the move in premarket trading, with Delta Air Lines (DAL) rising 4.4% after the carrier posted stronger-than-expected first-quarter earnings and reiterated its full-year profit forecast.
Nvidia (NVDA) shares, meanwhile, slipped 1.2% after closing at a one-month low of $853.54 last night. A price-target boost from Morgan Stanley, which lifted its target by $205 to $1,000 a share, could support the stock later in the session.
Boeing (BA) shares extended declines, falling 0.2%, after the Federal Aviation Administration said it's investigating whistle-blower allegations of unsafe manufacturing practices at the planemaker
More Wall Street Analysts:
- Analyst unveils Nvidia stock price 'line in the sand'
- Analyst revamps homebuilder stock price target before Fed rate call
- Analysts revamp Nvidia price targets as Blackwell tightens AI market grip
On Wall Street, stocks are looking at a muted open, but with the market's key volatility gauge, the VIX index, trading near a one-month high at $15.31, and CPI data due at 8:30 am. Eastern Time, big changes before the opening bell are likely.
Futures contracts tied to the S&P 500 suggest a 14 point opening-bell gain, while those linked to the Dow Jones Industrial Average are indicating a 115 point bump. The Nasdaq is called 47 points higher.
Related: JP Morgan CEO Jamie Dimon delivers stark warning on inflation, economy
In overseas markets, the Europewide Stoxx 500 was up 0.54% in early Frankfurt dealing ahead of the April 11 ECB rate decision, while the FTSE 100 added 0.62% in London.
Overnight in Asia, the regionwide MSCI ex-Japan benchmark rose 0.65%. The move up came despite a broad pullback in China stocks linked to a downgrade of the outlook of the country's sovereign credit to negative from stable.
Japan's Nikkei 225, meanwhile, ended 0.48% lower in Tokyo.
Related: Veteran fund manager picks favorite stocks for 2024
