US inflation came in slightly higher than market expectations, prompting concerns that central banks may wait longer to cut interest rates.
Consumer price inflation in March sped up to 3.5% from 3.2% the month prior and came in hotter than forecasts of 3.4%.
Similarly, the core CPI index, which excludes food and energy prices, reached 3.8%, the same as in February, but higher than estimates of 3.7%.
On a monthly basis, headline inflation came in at 0.4% for the third consecutive month, more than double the rate economist said was needed to bring inflation down to target levels.
That's the third straight month CPI inflationary numbers came in hotter than expected, Jay Woods, chief global strategist at Freedom Capital Markets noted.
No June rate cut
Hopes of a June cut by the Fed are now essentially dead in the water, market analysts said.
US markets have now priced out a June rate cut, with swaps indicating just two cuts totalling half a percentage point this year.
This was down from the six cuts that traders were expecting as of December last year.
"Those looking for two or possibly three rate cuts are in for a big surprise as the odds now for a June cut, which were over 50% coming into this number, are down to under 20%," Woods noted.
"As for the Fed who likes to take data points 'one at a time', this is not a point they needed. They will have to address the stickiness of the situation when talking about getting towards their 2% goal."
The hot inflation trend looks to continue for a few more months the narrative could change to one of a raise, according to Woods. "We aren’t there yet," he added.
Drawdown likely
Traders keep watching the 10-year yield, which reached similar heights in November when the S&P 500 was trading just under 4,600.
At roughly 12% higher, a drawdown is likely, Woods told Proactive.
"Rate-sensitive areas – small caps, cyclicals and utilities – should continue to pullback, but the yields at these levels should have a much broader effect on the market. Technically, watch the 5,000 level in the S&P 500. That would mark a 5% retracement in the index.
"This is a healthy pullback historically as we average three retracements of that size a year," he added.
"The dip buyers have been resilient for months now and if rates do not quickly jump higher, I suspect we will see buyers step in as the higher-for-longer narrative continues to defy many of the Wall Street bears."
Leo Greico contributed to this report