Stocks tumbled on Tuesday after fresh data revealed that inflation eased somewhat but stayed stubborn in January.
That comes after the Dow Jones Industrial Average on Monday notched a record high close, while the S&P 500 retreated from its record high.
The Dow slid 490 points, or 1.3%, Tuesday morning after falling more than 500 points at its session lows. The S&P 500 declined 1.1% and the Nasdaq Composite lost 1.1%.
The Consumer Price Index revealed that prices rose by 3.1% for the 12 months ended in January, according to Bureau of Labor Statistics data released Tuesday. On a monthly basis, CPI rose by 0.3% last month.
Both measures came in hotter than expected: Economists expected inflation to ease to 0.2% from December and slow to 2.9% annually, according to FactSet.
Traders now largely expect the Federal Reserve to first cut its benchmark lending rate in June or July, according to the CME FedWatch Tool.
“With this new data, a first cut in June seems like the most reasonable expectation unless we see a very quick, severe drop in labor market activity or a geopolitical shock,” wrote Greg Wilensky, head of US fixed income at Janus Henderson Investors, in a note Tuesday.
Earlier this year, Wall Street priced in about six rate cuts for 2024 after the Fed in December signaled that it will begin winding down rates after bringing them to a then-22-year high over the course of its rate-hiking campaign. That helped spur a widespread rally that saw everything from crypto to stocks to gold climb higher.
Stocks have gone on to jump even further and notch several record highs already this year. But some investors have warned that the market could waver as Wall Street contends with the fact that continued strong economic data means that the central bank, which has penciled in three cuts, likely won’t cut rates as promptly or aggressively as expected.
“The stock market can’t keep rallying if rates are going to be higher-for-longer especially if the assumption that the Fed is completely done raising rates is incorrect,” wrote Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a Tuesday note.
Atlanta Fed President Raphael Bostic told in an exclusive interview published Monday that he doesn’t see the Fed cutting rates until the summer.
As stocks slid on Tuesday, bonds also sold off. The yield on the 10-year Treasury note rose to 4.26%.
Elsewhere, JetBlue shares popped 11.5% after Carl Icahn disclosed late Monday that he had taken a 9.9% stake in the company.
Hasbro shares declined 6% after missing Wall Street’s expectations for its latest quarter.
This story is developing and will be updated.