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By Nicholas
Jasinski | Thursday, February 10 Price-Gain
Pain. Inflation
data came in hot, the odds of faster or larger Federal
Reserve interest rate increases went up, bond yields climbed,
and stocks fell. That's today's market action in four acts. The consumer price index for
January, reported this morning, showed prices climbing at a 7.5% from a year
earlier, a pickup from the previous month's pace and the highest reading
since 1982. Barron's Megan
Cassella has all the details on the high- and
low-lights from today's CPI report here. With the post-pandemic U.S. economy on solid
footing and unemployment at 4%, the Fed is now focused on reining in
that inflation. Officials have strongly suggested that a March liftoff on
interest rates is in the cards, and Fed Chairman Jerome
Powell said last month that a half-percentage point increase
isn't off the table. That was before January's even hotter inflation reading. Now, it appears even more likely that the
Fed's rate-setting committee will have to move faster to get inflation to
more normal levels. St. Louis Fed President
James Bullard told Bloomberg
News today that he would like to see the
Fed's target interest rate hit 1% by July. Bullard is just one committee member, but
the evolution in his thinking is likely to be directionally the same as his
peers. Market pricing moved to reflect that shift today: futures
contract prices now imply a roughly 93% likelihood of a 0.5 percentage point
increase in the federal-funds rate at the
March meeting, according to data from CME Group. That's up from 25%
yesterday and 7% a month ago. The Fed's policy committee's next meeting is
on March 15 and 16. Officials will have another month of inflation and jobs
data to parse before then. But the bond market seems to have made up
its mind already: Yields jumped today to reflect expectations of higher
benchmark rates sooner. The yield on the 10-Year U.S.
Treasury note jumped more than a tenth of a percentage point,
to 2.03%. That's the highest it has been since July 2019. As investors have experienced time and time
again so far in 2022, higher bond yields were a drag on stock prices today.
Higher yields mean future earnings are worth less when discounted back to the
present, and provide more competition for equities. All 11 sectors in the
S&P 500 declined today, led lower by the highest-multiple
groups like technology—which dropped 2.6%—and the so-called "bond
proxy" sectors of real estate (down 2.9%) and utilities (down 2.5%). The
index as a whole fell 1.8%. The Nasdaq Composite lost 2.1% and
the Dow Jones Industrial Average fell 1.5%. |
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DJIA: -1.47% to 35,241.59 The Hot Stock: Walt
Disney +3.4% Best Sector: Materials -0.6%
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