Markets React to Inflation Data, Fed Policy Speculation, and Global Gains

Inflation concerns drove US market volatility as Fed rate expectations shifted. Global markets rose while oil and housing stocks weighed on Wall Street.

The Nasdaq inched up 6.09 points or less than a tenth of a% to 19,649.95 after tumbling by as much as 1.2%. The Dow slid 225.09 points or 0.5% to 44,368.56, while the S&P 500 fell 16.53 points or 0.3% to 6,051.97.

The Labor Department reported that the consumer price index rose by 0.5% in January, up from 0.4% in December. This rise was partly driven by a 1.1% surge in energy prices, following a 2.4% jump in December. Excluding energy and a 0.4% increase in food prices, core consumer prices rose by 0.4% in January, up from 0.2% in December. The annual core inflation rate also ticked up to 3.3% in January from 3.2% in December.

Inflation data sparked speculation the Fed will hold rates longer. Powell said the Fed could maintain restraint if inflation stays above 2%. "Today's data reaffirms Powell's decision to put rate cuts on the back burner for an extended period of time. Overall, today's inflation data should force market participants to re-think the Fed's ability to cut rates this year, especially considering the rise in prices is likely unrelated to any tariff activity from the White House", said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management.

Early selling pressure eased as Trump considered tariff exemptions for auto and pharma, though Johnson remained uncertain. Oil producer stocks moved sharply lower over the course of the session, dragging the NYSE Arca Oil Index down by 2.9%. Housing stocks too were significantly weak, as reflected by the 1.7% loss posted by the Philadelphia Housing Sector Index. Natural gas, steel and commercial real estate stocks also saw notable weakness while gold stocks showed a strong move to the upside despite a modest decrease by the price of the precious metal.

Asia-Pacific moved mostly higher. Japan's Nikkei 225 Index rose by 0.4% while China's Shanghai Composite Index advanced by 0.9% and Hong Kong's Hang Seng Index surged by 2.6%. The major European markets also moved upwards while the German DAX Index climbed by 0.5%, the U.K.'s FTSE 100 Index increased by 0.3% and the French CAC 40 Index crept up by 0.2%.

In the bond market, treasuries moved sharply lower in reaction to the consumer price inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 10 bps to 4.63%.

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