4:10pm:
Stocks closed mixed on Wednesday as investors digested hotter-than-expected inflation data and awaited Federal Reserve Chair Jerome Powell's testimony to Congress.
The Nasdaq ended the day flat, closing at 19,650. The S&P 500 fell 0.3%, shedding 17 points to finish at 6,052. The Dow dropped 0.5%, losing 225 points to close at 44,369.
The market's performance was largely influenced by the release of January's Consumer Price Index (CPI) data, which showed inflation accelerating for the fourth consecutive month. The CPI rose 3% in January, its highest level since June, while core inflation, excluding volatile food and energy prices, accelerated to 3.3%.
This hotter-than-expected inflation report caused Treasury yields to soar, with the 10-year Treasury yield jumping 10 basis points to 4.63%. The data also led investors to recalibrate their expectations for interest rate cuts, with market participants now betting on fewer rate reductions in 2025.
3:35pm: Inflation risks
Efforts to reduce inflation are stalling, analysts at Wells Fargo warned.
Wells Fargo expects two 25 basis point rate cuts later this year, though risks are leaning toward no cuts if inflation doesn't subside.
"The upside surprise is reminiscent of last January's CPI report and suggests even the updated seasonal factors released in today's report are still struggling to capture early year price increases after the pandemic-period scrambled the typical calendar year pattern of price changes," analysts wrote.
"That said, both the year-over-year rates of the headline and core CPI indices rose over the month. Therefore, setting aside any issues over residual seasonality, today's report offers more evidence of progress in lowering inflation stalling out."
2:55pm: Powell expected to avoid tarrifs speculation
This week’s testimony by Federal Reserve Chairman Jerome Powell before Congress could influence investor expectations on interest rates, says Jeffery Roach of LPL Financial.
The Fed's Monetary Policy Report mentions tariffs briefly but Powell is expected to avoid speculation about trade policy due to its fluid nature, Roach noted.
On tariffs, Roach posited that Powell will likely stress that their impact depends on factors such as consumer and firm sensitivity, as well as currency adjustments. While tariffs raise business costs, the exact impact is not always clear. Powell has indicated that the Fed may keep rates higher for longer to tackle inflation, and with recent inflation data, rate cuts are unlikely until the summer. Investors should focus on long-term strategies, given the current economic uncertainty.
1:40pm: Stocks on the move
CVS Health Corp (NYSE:CVS)’s shares surged more than 15% after the pharmacy chain posted positive financial results for the fourth quarter.
Elsewhere, Barrick Gold Corp. (TSX:ABX, NYSE:GOLD) surged 6.3% on Wednesday after reporting better-than-expected fourth-quarter earnings, bolstered by expanding margins and stronger free cash flow.
Meanwhile, Kraft Heinz Co (NASDAQ:KHC, ETR:KHNZ) shares slipped after the packaged foods company posted a revenue miss for the fourth quarter, as higher prices saw cost-conscious shoppers turn to other brands.
12:20pm: Stocks struggle on CPI news
The Nasdaq is flat at midday, while the Dow Jones and S&P 500 are trading lower.
While the tech-heavy index is holding steady, the S&P 500 is down 0.2%, and the Dow Jones has fallen 0.4%.
“Today's CPI numbers increase our conviction that the Fed cutting cycle is over,” analysts at Bank of America wrote.
“Markets are now pricing only about 25bp of cuts this year. Hikes remain unlikely, but they seem less inconceivable now. We still think the threshold for hikes is 3% core PCE inflation and unanchored long-term inflation expectations.”
11:20am: CPI report 'cautionary tale'
Larry Tentarelli, Chief Technical Strategist for Blue Chip Daily Trend Report, views the January CPI report, which came in above expectations, as a cautionary signal for markets. With all four key CPI metrics higher than forecast, there is growing speculation that the Federal Reserve may raise interest rates if inflation persists.
"We believe that the Fed is on hold until at least May of this year, but a series of above forecast inflation prints could lead to a change in Fed policy, higher," Tentarelli wrote.
"The labor market remains very strong and resilient, combined with higher inflation, this takes the Fed rate cut conversation off the table for now."
Tentarelli is still bullish on the equity markets for 2025 and has a year-end price target for the S&P 500 of 6,800, but warns of potential tariffs and/or rising inflation creating headwinds.
9.55am: Stocks knocked by hot CPI
US stocks fell on the back of the US inflation reading.
The Dow Jones fell 0.8%, the S&P 500 0.7% and the Nasdaq 0.4%.
On the CPI reading, Jamie Cox, managing partner for Harris Financial Group, said: "Lack of progress on inflation is the story here—this is not the start of a resurgence in inflation.
"If these levels of inflation persist, the Fed will be on hold until October. Food and Energy are big players in the hot reads, so there’s a chance we get a little reprieve in the spring."
Harun Thilak, head of global capital markets NA at Validus Risk Management, said the CPI data "has diminished the likelihood of a Fed rate cut this year, with markets now pricing in the next full Fed rate cut for the December meeting.
"Following the data release, as anticipated, both the USD and US yields saw an increase."
8.35am: US inflation higher than expected
Stock futures have perked up after US inflation spiked more than expected last month.
The US consumer price index ended January 0.5% higher than the end of December, which was more than the 0.3% monthly increase that economists expected and up from 0.4% the prior month.
Year on year, CPI was up 3.0%, up from 2.9% in December, with economists forecasting it would remain at 2.9%.
Core CPI, which excludes energy and food prices, rose 0.4% on the month, versus 0.3% expected and 0.2% in December, while core CPI climbed 3.3% year-on-year, up from 3.2% and higher than the 3.1% that the consensus estimate.
Nasdaq futures are now pointing to almost a 0.2% gain, while Dow Jones futures remain in the red, and those for the S&P 500 are still pretty much flat, having spiked momentarily.
7.30am: Stock futures cautious ahead of CPI reading
US stock indexes are set to start in cautious mode ahead of consumer inflation data being published later on Wednesday.
Dow Jones and S&P 500 futures were both down more than 0.1% while Nasdaq 100 futures were marginally above flat.
This followed a mixed session a day earlier as Federal Reserve chairman Jerome Powell said the central bank is in no rush to lower interest rates as the economy remains strong and the labour market seen “broadly in balance”.
Yesterday saw the S&P 500 flat, the Dow Jones rise 0.3% and the Nasdaq and Russell 2000 fall 0.4% and 0.5% respectively.
Powell told the Senate Banking Committee: “With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance."
That was the first of his two-day address to the US Congress.
US Treasury bond yields edged higher but only marginally so, with markets largely leaving rate cut odds unchanged, though the first one is now not expected until September, pushed back from July as had been thought relatively recently, with possibly just one cut this year rather than two.
January's consumer price index data is due out today at 8:30 am Eastern time, with the market expecting a 0.3% rise month-on-month and 2.9% versus a year ago, while core CPI is expected to be up 0.3% and +3.1% on the month and year respectively.
January CPI Inflation Expectations:
???? Kalshi: 2.9%
???? Bank of America: 2.8%
???? Barclays: 2.9%
???? BNP Paribas: 2.9%
???? Citigroup: 3.0%
???? Goldman Sachs: 3.0%
???? Moody's: 2.8%
???? Morgan Stanley: 2.9%
???? UBS: 3.0%
???? Wells Fargo: 2.9%@Kalshi's prediction… pic.twitter.com/d9upj6zG2Y
— *Walter Bloomberg (@DeItaone) February 12, 2025
"In essence – if they come in as expected – you can expect the narrative to be that inflation is ‘under control’ thus igniting the whole rate cut story all over again," said market analyst Kenny Polcari at Slatestone, "even though [Powell] just said that he is in NO hurry to move on rates – partly because he is being cautious surrounding the new policies being introduced by the current administration."
Today also brings real average hourly and weekly earnings data, with Polcari saying "any pressure to the upside would suggest rising wages – which can be the kindling wood for the fire".
In earnings announcements, CME Group, CVS Health, Kraft Heinz and Barrick Gold are among the pre-bell reporters, with numbers after the close including Cisco Systems, Applovin and Robinhood Markets.
Chip-making giant Taiwan Semiconductor Manufacturing Company, which is dual listed on the NYSE, earlier released its financial and strategic plans for the coming year, including approval of a US$17 billion capex plan. The shares are little moved.