Nasdaq, S&P 500, Dow Jones fall after hot inflation report

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Stocks are already higher Wednesday, shaking off inflation worries quickly in what promises to be a choppy session.

Futures were up sharply ahead of the CPI, then down sharply, then cut losses into the open.

The S&P (SP500) +0.5%, up 28 points to 4,029, and Dow (DJI) +0.7%, up 270 points to 32,340, are still outpacing the Nasdaq (COMP.IND) +0.1%, up 12 points to 11,750.

All 11 S&P sectors are higher, led by Energy as crude gains more than 5%.

Rates are off their highs. The 10-year Treasury yield reversed course and is up 2 basis points to 3.01%. The 2-year is up 7 basis points to 2.69%.

April core CPI rose 0.6% month over month, hotter than the 0.4% expected. That’s where market attention was focused. The headline annual rate came in at 8.3%.

“The monthly core is seriously disappointing, on the face of it, though the core core is much better,” Pantheon Macro’s Ian Shepherdson said.The “core-core measure rose only 0.31%, the smallest gain since September and the trend is slowing.”

The numbers are a blow to the Federal Reserve, which has been seen as behind the curve on inflation for a while and just took hikes of 75 basis points off the table.

If the Fed keeps “sugar coating” and “underpromising” then people are going to lose confidence in the central bank, former Fed governor Bill Dudley said on Bloomberg TV.

“This report does not change the near-term Fed outlook; they will still hike by 50bp next month,” Shepherdson said. “The chance of a switch to 25bp in July probably now is less than we hoped, unless the May and June core prints are much lower.”

“Bear in mind too that the next few months also will bring clear evidence of the housing rollover and softer manufacturing numbers too, and payroll growth probably will slow a bit. A 25 in July is not dead.”

A second-consecutive softer CPI was needed for “stocks to get legs,” Nomura said.

See the individual stocks making the biggest moves this morning.