Stock Market Today: Stocks tumble on hot inflation data, wrecked rate cut bets

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U.S. stocks extended declines in early Tuesday trading after the Commerce Department posted a hotter-than-expected January inflation report that shocked markets and triggered big changes in Fed rate forecasts.

Updated at 9:54 AM EST

Tumblin' dice

Stocks are looking at their weakest open of the year, with the S&P 500 down 68 points, or 1.36%, in first half hour of trading, with the Dow falling 447 points and the Nasdaq 292 points, or 1.84%.

Benchmark 10-year note yields were holding their post inflation data gain at 4.261% while 2-year notes eased modestly, to 4.584% but are still some 13 basis points higher than prior to the 8:30 am Eastern time release.

"With the Fed currently deciding monetary policy based on the incoming data, it looks like this print will push back the timeline for interest rate cuts," said Rob Clarry, Investment Strategist at wealth management firm Evelyn Partners.

"It comes on the back of stronger-than-expected economic growth, a big upside surprise from the January US jobs report, and resilient wage growth," he added. "Traders now expect around four interest rates cuts in 2024, which is down from the six expected just over a month ago."

The probability of a March rate cut moved down to 9% after the hotter-than-expected inflation report. Only a month ago the probability was 77%. pic.twitter.com/TCiv7Y1Pts— Charlie Bilello (@charliebilello) February 13, 2024

Updated at 9:16 AM EST

Dollar leap

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, surged 0.7% to a three-month high of 104.84 in the wake of the January inflation report, as traders adjust the odds of near-term Fed rate cuts. 

Outside the surprise pop in housing there is little evidence of a "January effect" in core CPI with lots of prices resetting higher, 1, 3, 6 and 12m gains are all running at a a 0.2% monthly rate consistent with the Fed's target pic.twitter.com/sMCedsXAPM— Julia Coronado (@jc_econ) February 13, 2024

Updated at 8:52 AM EST

Wrecked rate bets

Treasury yields surged and stocks futures tumbled after the Commerce Department posted a less-than-expected decline in January inflation figures in a report that has basically wrecked bets on a spring Fed rate cut.

The CME Group's FedWatch pegs the odds of a May reduction at just 32.5%, down from around 55% last week, and has effectively erased any shot of a March cut.

Wall Street futures now suggest a 57 point opening bell decline for the S&P 500 and a 312 point slump for the Dow. 

Benchmark 10-year note yields surged 15 basis points to 4.281% while 2-year notes, the most-sensitive to interest rate changes, jumped to 4.621%.

⚠️ TRADERS BET FED WON'T CUT RATES UNTIL JUNE AS INFLATION FAILS TO COOL  (Reuters)

Federal Reserve policymakers will probably wait until June before cutting interest rates, traders bet on Tuesday, after a government report showed consumer inflation ran higher than expected… pic.twitter.com/BJVWboFx7p— PiQ (@PiQSuite) February 13, 2024

Updated at 7:17 AM EST

A Coke and a price hike

Coca-Cola  (KO)  shares edged higher after a modestly better-than-expected fourth quarter earnings report, which showed revenues rising 7% to $10.95 billion with a Street-matching bottom line of 49 cents per share. 

Overall unit volumes were up 2%, Coca-Cola said, but average selling prices were able to rise 9% over the three months ending in December. 

Stock Market Today 

Stocks ended mixed Monday, with the Dow Jones Industrial Average closing at a fresh record higher after coming within a few points of the 39,000-point mark as investors continue to see value from a solid fourth-quarter earnings season and a resilient domestic economy.

With around two-thirds of the S&P 500 reporting December-quarter earnings to date, analysts expect collective profits to show a rise of more than 9% from the same period in 2022 to a share-weighted $473 billion.

Earnings growth will likely slow to around 5.4% over the first three months of this year, with profits of around $461.5 billion, a strong enough pace of advance to continue justifying the highest price-to-earnings multiple for the S&P 500 in more than two years. 

However, the S&P 500's solid year-to-date rally, which has seen the benchmark rise nearly 5.4%, could be sternly tested prior to the opening bell by the Commerce Department's January inflation report. 

Economists expect headline inflation to fall below the 3% mark for the first time in more than two years, with an annualized reading of 2.9%, but they see little change in monthly price pressures.

Any suggestion, however, that inflation is ticking higher into the start of the year, in parallel with a stronger economy and a resilient job market, could add further fuel to the Fed's recent hawkish messaging and delay interest-rate cuts until well into the summer months. 

CME Group's FedWatch tool currently suggests a 58.5% chance that the Fed's first reduction will begin in May. 

Benchmark 10-year Treasury note yields nudged modestly higher, to 4.166%, heading into the start of New York trading and the January CPI release at 8:30 a.m. U.S. Eastern Time. Two-year notes were pegged at 4.476%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.09% lower at 104.071.

Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 are indicating a 20 point opening-bell decline while those tied to the Dow are priced for a 48 point pullback. 

Futures linked to the tech-focused Nasdaq are indicating a 134 point opening-bell decline. 

In overseas markets, Japan's Nikkei 225 topped 38,000 for the first time since 1990 in the Tuesday session, before retreating into the close and setting a 34-year high of 37,963.97 points. 

In Europe, the regionwide Stoxx 600 slipped 0.38% in early Frankfurt trading following a mixed reading of the ZEW investor sentiment index. That benchmark showed a boost in near-term optimism tied to ECB rate cuts but a dour assessment of current conditions in the world's biggest economic bloc.

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