Stocks fell sharply after disappointing data on inflation made investors confront the bitter possibility that interest rates will stay high for months longer than they were hoping.
- The S&P 500 fell 1.4% Tuesday after clawing back part of a larger intraday loss.
- The Dow Jones Industrial Average dropped 524 points, or 1.4%, from its record set a day earlier.
- The Nasdaq composite, which has been flirting with its all-time high set in 2021, sank 1.8%.
The worse-than-expected inflation report may have put the final nail into hopes that the Federal Reserve could deliver its first interest rate cut in March. It also pushed many forecasts past May into June.
High interest rates hurt all kinds of investments, and they tend to particularly hurt high-growth stocks like technology companies. A 2.2% drop for Microsoft and a 2.2% tumble for Amazon were two of the heaviest weights on the market. The losses were widespread, and nearly 90% of the stocks in the S&P 500 fell in the wipeout, the AP reports. It's one of the biggest speed bumps for the index since its big, record-setting rally began in late October . Stocks of smaller companies fell even more because high interest rates could hurt them more than their bigger rivals by making it more difficult to borrow cash. The Russell 2000 index of smaller stocks plunged 4% for its worst day since two summers ago.
Some analysts warned the inflation data could mean not only a delay to rate cuts but also the possibility that the Fed would raise rates further. But it's still just one data point, which followed several months of encouraging trends where inflation eased, says Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley. "Until proven otherwise, the longer-term cooling inflation trend is still in place," he says. "The Fed had already made clear that rate cuts weren't going to happen as soon as many people wanted them to. Today was simply a reminder of why they were inclined to wait."
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On Wall Street, Arista Networks sank 5.5% despite reporting stronger earnings and revenue for the latest quarter than expected. Moody's tumbled 7.9% after the credit-rating company reported weaker profit for the latest quarter than Wall Street had forecast. Hasbro fell 1.4% after the toy company reported weaker results for the last three months of 2023 than analysts expected. On the winning side, JetBlue Airways soared 21.6% after activist investor Carl Icahn disclosed he has built up an ownership stake in the airline and said he sees the stock as undervalued.
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