US stocks edged lower in choppy trading on Tuesday, after data showed inflation rose in January and pointed to further rate hikes by the Federal Reserve.
By mid-day, the tech-heavy Nasdaq Composite (COMP.IND) he was down 0.66% to 11,813.81 points. The benchmark S&P 500 (SP500) slipped 0.78% to 4,104.95 points, while the blue-chip Dow (DJI) he was lower by 0.99% to 33,908.45 points.
All 11 S&P sectors traded in the red, led by real estate and communications services.
Trading was volatile from the start of the session, with indices opening lower but then quickly reversing course. However, they failed to hold on to their gains and soon after slipped back into negative territory.
Earlier in the morning, the much-anticipated Consumer Price Index report for January was hotter than expected. Overall CPI rose 0.5% M/M versus the expected 0.4% increase. It was the highest CPI reading in three months. Y/Y, CPI rose 6.4%. Core CPI gained 0.4% M/M and 5.6% Y/Y.
“CPI was pretty hot today and showed that the disinflation process is likely to take longer than the stock market initially thought. This will work in the Fed’s favor to keep rates higher for longer,” Mott Capital Management’s Michael Kramer told Seeking Alpha.
According to CME’s FedWatch tool, markets are now pricing in the likelihood of a 25-basis-point interest rate hike at the Fed’s monetary policy committee meeting in March and May.
“Inflation will continue to be lower in our view, but the process is likely to be bumpy and take time. Despite some improvements in direction over the past few quarters, prices are still rising well above the Fed’s 2% target, and the tight labor market suggests that more there are always inflationary pressures that could prevent a full return to 2% inflation, Wells Fargo said.
“We continue to ask the FOMC to raise interest rates by an additional 25 basis points at the March and May meetings and to maintain the target range at 5.00%-5.25% for the remainder of the year to ensure that high inflation is contained for good,” Wells Fargo added.
Dallas Fed President Lori Logan said in a speech on Tuesday that the Fed will have to keep raising rates until it sees “compelling evidence” that inflation is on track to return to its 2% target.
Government bond yields rose after inflation data. The 10-year bond yield (US10Y) rose 6 basis points to 3.78%. The two-year yield (US2Y) gained 9 basis points to 4.62%.
Among active stocks, animal health company Zoetis ( ZTS ) was among the top gainers on the S&P 500 ( SP500 ), despite mixed quarterly results.
Optical laser maker IPG Photonics ( IPGP ) was also among the S&P’s top gainers after beating earnings estimates.
Shares of NVIDIA ( NVDA ) rose amid positive comments from analysts about the chipmaker’s potential gains from advances in artificial intelligence technology.