Feb. 13 (UPI) — Stocks tumbled Tuesday as the Dow Jones Industrial Average dropped 525 points — recording its worst one-day loss in nearly a year — on news that inflation ran hotter than expected in January, stoking investor fears that interest rates may not be coming down soon.
The Dow fell more than 700 points Tuesday afternoon before regaining some ground to close down 1.4%, or 525 points, at 38,273. It is the largest single-day drop since March 2023. The S&P 500 lost 1.4% and the Nasdaq Composite dropped 1.8%.
Earlier Tuesday, the Bureau of Labor Statistics reported the consumer price index was up 0.3% from December to January, and up 3.1% over this time last year. Economists had predicted smaller increases of 0.2% for the month and 2.9% for the year.
Housing costs drove January’s inflation, rising 0.6% for the month. Food prices were also up 0.4%, as the cost of energy dropped 0.9%, according to the report.
As President Joe Biden touted economic “growth and employment remain strong” in a statement Tuesday, he added “there’s still work to do to lower costs,” while pointing out that “inflation has declined by two-thirds from its peak.”
“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,” Quincy Crosby, chief global strategist for LPL Financial, told CBS in an email.
As Wall Street had been expecting the Federal Reserve to cut its benchmark lending rate as early as March, that expectation has now been pushed to June or July, according to CME FedWatch Tool.
“With this new data, a first cut in June seems like the most reasonable expectation unless we see a very quick, severe drop in labor market activity or a geopolitical shock,” Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors, wrote in a note Tuesday.
Stocks have been rising on Wall Street expectations that the Fed could start winding down interest rates. The Dow hit a record-high close Monday on data that showed progress on inflation, then sank Tuesday with the CPI.
“The stock market can’t keep rallying if rates are going to be higher for longer,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a Tuesday note, adding “especially if the assumption that the Fed is completely done raising rates is incorrect.”
