Wall St Ends Down as Hot Inflation Data Raise Chances of Steep Fed Rate Hike

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  • Fed futures now favor a 100bp rate hike in March
  • Twitter jumps after revealing Hindenburg long position
  • Delta Air Lines slumps due to profit loss in Q2
  • Indices down: Dow 0.67%, S&P 0.45%, Nasdaq 0.15%

NEW YORK, July 13 (Reuters) – US stocks closed modestly lower Wednesday after investors processed higher-than-expected US inflation data, fueling fears the Federal Reserve could raise key interest rates by as much as 100 basis points later this month.

While all three major US stock indices bounced off lows reaching early in the day, moving into positive territory at times during the session, they were all red near the closing bell.

Year-over-year consumer price growth accelerated to a scorching 9.1%, the highest since November 1981, driven by an 11.2% monthly increase in gasoline prices. read more

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Eliminating volatile food and energy prices, which have fallen since the report’s survey period, core CPI fell to an annualized rate of 5.9%.

“You would expect the CPI (report) we saw to be a big risk, but the market has shrugged,” said Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky. “(Investors) were already expecting a very aggressive Fed and I don’t think it has much impact other than uncertainty and that has something to do with why the markets aren’t selling today.”

The report raised the likelihood that the Federal Reserve will raise interest rates even more than the previously expected 75 basis points. Futures traders linked to the Fed’s target rate have now priced in the likelihood of a larger increase of 100 basis points at the end of the policy meeting later this month.

“If the Fed looks beyond the main number, they will see that commodity prices have already fallen a bit” since the CPI survey period, Mayfield said, adding that a 100 basis point rate hike based on the June CPI report could help. puts central bank policy “behind the curve”.

As can be seen in the chart below, the core CPI appears to confirm that inflation continues to decline from its March peak, but that there is still a long way to go before the central bank’s average annual inflation target of 2% is set. reaches:

The question of whether the Fed’s policy tightening could curb inflation without plunging the economy into recession appears to be shifting to how severe the downturn is likely to be.

The Dow Jones Industrial Average (.DJI) fell 208.54 points, or 0.67%, to 30,772.79, the S&P 500 (.SPX) lost 17.02 points, or 0.45%, at 3,801.78 and the Nasdaq Composite (.IXIC) fell 17.15 points, or 0.15%, to 11,247.58.

Nine of the 11 major sectors of the S&P 500 lost ground, with industrials and services (.SPLRCI) and communication services (.SPLRCL) with the largest percentage decline, while consumer cyclical (.SPLRCD)+ enjoyed the biggest gains.

The earnings season for the second quarter will be in full swing on Thursday, when JPMorgan Chase & Co and Morgan Stanley will release the results, followed by Citigroup and Wells Fargo & Co on Friday.

Last Friday, analysts saw total annual S&P earnings growth of 5.7% for the April-June period, down from the 6.8% forecast at the start of the quarter, according to Refinitiv.

Shares of Delta Air Lines (DAL.N) fell 4.5% after the airline’s second-quarter revenue exceeded expectations, although Chief Executive Ed Bastian said strong demand for travel will result in “meaningful” profits for the full year

The Broader S&P 1500 Airlines Index (.SPCOMAIR) fell by 1.7 percent.

Tesla Inc advanced 1.7%, while chipmakers (.SOX) also gained ground.

Twitter Inc (TWTR.N) rose 7.9% after Hindenburg Research said it had taken a significant long position in the company’s stock.

The number of declining issuances surpassed the avant-garde on the NYSE by a ratio of 1.37 to 1; on Nasdaq, a 1.08-to-1 ratio favored decliners.

The S&P 500 posted a new 52-week high and 41 new lows; the Nasdaq Composite recorded 16 new highs and 231 new lows.

Volume on US stock exchanges was 10.66 billion shares, compared to the average of 12.56 billion over the past 20 trading days.

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