Dow, S&P 500, Nasdaq slip as hot inflation data spooks markets

US stocks were largely lower on Wednesday as investors digested a hotter-than-expected January inflation reading.

The Dow Jones Industrial Average (^DJI) dropped more than 0.4%, while the benchmark S&P 500 (^GSPC) slipped 0.2%. The tech-heavy Nasdaq Composite (^IXIC) was just above the flatline.

The Consumer Price Index (CPI) out Wednesday showed headline consumer inflation rose more than forecast in January. “Core” prices — which strip out the more volatile costs of food and gas — reversed the previous month’s easing, up 0.4% over last month and 3.3% over last year, with both rates higher than in December.

The surprise inflation print pushed back investor bets on interest-rate cuts in 2025. As of Wednesday morning, traders were pricing just one interest-rate cut, after pricing in two for most of the year. The 10-year Treasury yield (^TNX) added 11 basis points to hit 4.64% following the inflation data.

Meanwhile, markets are on alert for more policy surprises from Trump, who is expected to announce reciprocal tariffs on many countries before the end of the week.

A fresh batch of earnings provided some clues to Corporate America’s resilience. Kraft Heinz (KHC) shares slid after the packaged food maker’s 2025 profit outlook fell short. But CVS Health (CVS) stock got a boost as investors welcomed a smaller drop in quarterly profit than expected.

On the after-hours docket, Reddit (RDDT) results come amid sky-high Wall Street expectations. Robinhood’s (HOOD) report is also in focus after the stock touched a three-year high.

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Housing inflation pressures intensified in January from previous month

The latest Consumer Price Index (CPI) showed that housing inflation picked up in January on a monthly basis, reversing the easing trend seen in the previous month.

Data from the Bureau of Labor Statistics showed shelter costs rose 0.4% in January compared to the previous month and higher than December’s 0.3% monthly increase. On an annual basis, prices rose 4.4% from a year earlier in January, slower than the 4.6% in December and the smallest 12-month increase since January 2022.

“As we saw through 2024, shelter inflation will continue to take time to get back to reasonable levels,” Josh Hirt, Vanguard senior US economist, said in an email after the release.

The rent index rose 0.3% in January, matching December’s pace of 0.3%. Meanwhile, prices for owners’ equivalent rent increased 0.3% for the month, unchanged from January’s 0.3% gain. Owners’ equivalent rent is the estimated rent a homeowner would pay if they were renting their own property.

Meanwhile the lodging away from home index rose 1.4% in January after falling 0.5% in December, and household insurance accelerated 1.1% last month.

“We continue to hold the view that shelter inflation will eventually moderate over the course of 2025,” Hirt added.
Used car prices jump most since May 2023 and could push higher as inventory shrinks

Yahoo Finance’s Pras Subramanian reports:

New and used car prices were mixed to start the year in January’s Consumer Price Index (CPI) reading, but used prices continued trending higher, with January’s jump the largest since May 2023.

New car prices were flat in January and down 0.3% compared to a year ago, whereas used vehicles popped 2.2% in January and were up 1.0% for the year.

This comes as overall prices in the US rose 0.5% over the previous month, the largest monthly headline increase since August 2023 and a slight acceleration from the 0.4% rise seen in December. Year-over-year prices rose 3.0% over the prior year in January, an uptick from December’s 2.9% annual gain in prices.
Nasdaq hits the green as Tesla rallies

Stocks rallied off their lows of the day throughout Wednesday as the Nasdaq Composite narrowly crossed into positive territory around 12:30 p.m. ET.

Tesla (TSLA) proved to be a key catalyst for the tech-heavy index as shares rallied more than 4%.
CVS stock pops after topping earnings expectations

Yahoo Finance’s Anjalee Khemlani reports:

CVS (CVS) reported fourth quarter and full year 2024 earnings Wednesday, beating Wall Street’s expectations and sending its stock up more than 14%.

Full year revenue came in at $372.8 billion, while fourth quarter revenue was $97.7 billion compared to Wall Street’s expectations of $96.8 billion. The health care benefits segment, which includes its various insurance products, was down slightly, with ongoing Medicare and Medicaid headwinds, which have also impacted its peers, dragging the company’s revenue.

Still its retail pharmaceutical business, at a time when the business model is struggling, increased, as well as the health care services segment.
The interest rate path remains ‘uncertain,’ Powell says

When asked directly about President Trump’s tariffs and how they could impact the Federal Reserve’s monetary policy path, Fed Chair Jerome Powell admitted it’s rather unclear.

As he did during a Jan. 29 press conference, Powell stressed there is increased uncertainty right now as the Fed waits to hear what exactly happens with Trump’s policy. He added that while tariffs could impact the economic outlook and cause the Fed to change its monetary policy plans, the central bank is also watching immigration, fiscal policy, and regulatory policy.

Powell said they can’t assess how any of those factors will impact the economic outlook until it’s clear what policies are actually being put into place.

For now, Powell said Wednesday’s January CPI reading showed similar signs to what the Fed has been seeing.

Powell said inflation is “close” to the Fed’s 2% goal but “we’re not there yet.”
Trump shrugs off hot data as ‘Biden inflation’, calls for lower rates

Yahoo Finance’s Ben Werschkul reports:

Donald Trump on Wednesday morning dismissed a higher-than-expected inflation report as “Biden inflation” after making another call to lower interest rates.

The US president reacted to the release of the data showing headline consumer prices rose more than forecast by posting “BIDEN INFLATION UP!” on Truth Social.

The post came just an hour after another post earlier Wednesday morning that read “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!”

Read more here.
Markets trim Fed rate cut bets

Yahoo Finance’s Jennifer Schonberger reports:

A hotter-than-expected inflation reading at the start of 2025 makes it much more likely that the Federal Reserve will keep rates on hold for the foreseeable future, reinforcing a cautionary stance from Fed Chair Jerome Powell and other central bank policymakers.

After the latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose more than forecast in January, traders reduced their expectations for rate cuts in 2025 to just one — and not until much later in the year.

“It really does push the timeline into the second half of the year if things go well,” Claudia Sahm, chief economist at New Century Advisors and former Fed economist, told Yahoo Finance.

Read more here.
Stocks slide after hot inflation reading

US stocks fell on Wednesday as investors digested a hotter-than-expected January consumer inflation reading.

The Dow Jones Industrial Average (^DJI), the S&P 500 (^GSPC), and the tech-heavy Nasdaq Composite (^IXIC) were all off about 1%.
Inflation rises more than expected in January

New data from the Bureau of Labor Statistics out Wednesday showed that a key inflation metric rose more than anticipated in January.

On a “core” basis, which strips out the more volatile costs of food and gas, the January Consumer Price Index (CPI) climbed 0.4% over the prior month, an acceleration from December’s 0.2% monthly gain and above the 0.3% economists had expected. On an annual basis, prices rose 3.3%, above the 3.1% economists had projected.

Headline consumer prices also rose more than expected. The CPI increased 3% over the prior year in January, an uptick from December’s 2.9% annual gain in prices. The yearly increase was above the 2.9% economists had expected.

The index rose 0.4% over the previous month, ahead of the 0.3% increase seen in November and also on par with economists’ estimates.

Read more here.
JPMorgan: S&P 500 at risk of falling 2% if inflation runs hot

The S&P 500’s (^GSPC) record run could face a setback, according to JPMorgan Market Intelligence. The team estimates the index may drop up to 2% if the Consumer Price Index (CPI) rises 0.4% or more in January from the previous month.

With CPI data due at 8:30 a.m. New York time, markets are on edge. A slightly hotter print could challenge the bullish outlook on US equities. The consensus estimate is for a 0.3% rise in month-on-month CPI.
Europe stocks marooned in wait for CPI

Stocks in Europe trod water on Wednesday, mirroring the muted tone in markets as investors prepared for a fresh reading on US consumer inflation.

The pan-European Stoxx 600 (^STOXX) index inched up less than 0.1%, staying in range of fresh record highs thanks to solid earnings from the likes of Heineken (HEIA.AS, HEINY).

In individual benchmarks, Germany’s DAX (^GDAXI) rose 0.3%, while the CAC (^FCHI) in Paris traded flat. London’s FTSE 100 index (^FTSE) hugged the flat line.
Gold hits brakes on record-setting rally

Gold (GC=F) continued to pull back from a recent all-time high on Wednesda, as traders assessed Jerome Powell’s message that the Fed isn’t in a hurry to cut interest rates.

Prices of gold bullion dropped below $2,890 an ounce, falling for a second day, after a record-setting run toward the key $3,000 level.

Meanwhile, gold futures slid almost 1% to around $2,906 an ounce, with the shine coming off the non-interest-bearing asset as the 10-year Treasury yield (^TNX) rose.

Prices for the metal have surged in recent days as investors seek out less risky assets in light of President Trump’s push for tariff hikes.
Good morning. Here’s what’s happening today.

Economic data: Consumer Price Index (January); Real average hourly earnings (January); MBA Mortgage Applications (week ending Feb. 7)

Earnings: Albemarle (ALB), Biogen (BIIB), CVS Health (CVS), Cisco (CSCO), Dutch Bros (BROS), Generac (GNRC), Kraft Heinz (KHC), MGM Resorts (MGM), Reddit (RDDT), Robinhood (HOOD), The TradeDesk (TTD)

Here are some of the biggest stories you may have missed overnight and early this morning:

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Gold’s record rally hits pause after Powell’s speech

Bets on higher US rates face inflation data test

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China stock surge has analysts bullish

China’s AI-driven stock surge is gaining backing from Wall Street strategists, who believe the country’s emerging tech capabilities will help sustain the bull market.

Analysts from Morgan Stanley (MS), JPMorgan Chase & Co (JPM), and UBS Group AG (UBS) predict that stock gains fueled by DeepSeek’s artificial intelligence model will continue.

Bloomberg reports:
Alibaba stock soars on iPhone AI hype

Alibaba (BABA) stock saw a leap over 10% on the news that Apple (AAPL) is working with the Chinese e-commerce platform on breaking into artificial intelligence business in China.

Bloomberg reports: