U.S. stocks fell on Wednesday after a report revealed that inflation continues to worsen, increasing pressure on financial markets.
By afternoon trading, the S&P 500 was down 0.2%, while the Dow Jones Industrial Average dropped 169 points, or 0.4%. The Nasdaq Composite remained mostly flat. All three indexes opened sharply lower, with the S&P 500 falling as much as 1.1% earlier in the day.
The negative momentum followed a report showing that U.S. inflation had risen more than expected, with consumer prices in January 3% higher compared to the same period last year. This was worse than the 2.9% inflation rate from December, which economists had predicted for January. The rise in inflation was driven by increases in prices for eggs, gasoline, and other essential goods.
Treasury yields also surged, adding further pressure to the markets. The inflation data reinforced Wall Street’s expectations that the Federal Reserve is unlikely to reduce interest rates significantly in the near future. In fact, some traders now predict the Fed may not cut rates at all in 2025. The Fed had previously implemented aggressive rate cuts in 2024 to stimulate economic growth, but inflation’s persistence has caused concern that more rate cuts could fuel rising prices.
The two-year Treasury yield rose to 4.37%, up from 4.29% on Tuesday, while the 10-year Treasury yield jumped to 4.63% from 4.54%. These higher yields make bonds more attractive to investors compared to stocks, putting downward pressure on the stock market. Stocks, especially smaller companies, tend to struggle when borrowing costs rise, as they rely more heavily on loans for growth.
Among the hardest-hit sectors were smaller companies, with the Russell 2000 index falling 0.7%. Companies in the housing market also suffered, as high mortgage rates continue to weigh on the sector. Home Depot fell 2.1%, Builders FirstSource dropped 3.8%, and Lennar declined 3.1%. Real estate stocks, including Boston Properties, which owns commercial buildings in major cities like San Francisco and Boston, fell 1.7%.
Some companies did manage to outperform, including CVS Health, which saw its stock jump 16.2% after reporting strong revenue and profit results for the latest quarter. However, ride-hailing app Lyft saw its stock slip 3.3%, despite reporting higher-than-expected profits. Lyft’s revenue for the final quarter of 2024 fell short of analyst expectations.
In the international markets, European and Asian indexes mostly saw positive gains.
As inflation continues to rise and the Federal Reserve faces pressure to balance economic growth with price stability, investors will closely monitor future economic reports for further signs of direction in the markets.
