02/13/2024 – 18:38
New York stock exchanges closed with a robust drop after US consumer inflation readings surprised the market by coming in stronger than expected, postponing pricing for the start of the Federal Reserve's (Fed) interest rate cuts. Furthermore, investors monitored the results of the earnings season.
On Wall Street, the Dow Jones closed down 1.35%, at 38,272.75 points; the S&P 500 fell 1.37%, to 4,953.17 points; and the Nasdaq lost 1.80%, to 15,655.60 points. In the S&P sector breakdown, consumer discretionary (-1.96%) and real estate (-1.84%) led the losses.
Risk aversion on Wall Street was consolidated this morning in the pre-market, in the wake of stronger inflation readings in the US. According to the Department of Labor, the consumer price index (CPI) increased 0.3% in January compared to December and 3.1% at the annual rate. Despite slowing down compared to the previous month, both numbers came in above expectations of 0.2% and 2.9%, respectively, and remain high compared to the Fed's target of 2% inflation per year.
In CIBC's view, the data indicates that the disinflation desired by the American Central Bank is not yet happening. In a note, Capital Economics notes that the data serves as an argument for the narrative that “the last part is the most difficult” in combating inflation, a comment that has been frequent in speeches by Fed directors.
In general, the consensus among analysts is that the data postpones the possibility of a first interest rate cut by the Federal Reserve to June – and this perspective is also reflected by market pricing. According to the CME Group monitoring tool, the chance of a rate reduction in June ended the day at 72.1%, compared to 54.4% shortly after the data. Previously, the market still concentrated the majority probability of interest rate cuts in May.
The prospect of a tighter stance from the Fed for an extended period weighed on U.S. bank stocks. At the close, Goldman Sachs fell 3.54%, Morgan Stanley lost 3.34%, Citigroup fell 2.15%, Bank of America lost 2.59% and JPMorgan lost 0.87%. Among regional banks, Western Alliance dropped 5.77% and New York Community Bank dropped 5.17%. The Nasdaq regional bank index, the KBW, fell 2.93%.
In addition to macroeconomic data, Wall Street also kept an eye on results from the corporate earnings season. Despite meeting or exceeding expectations in their results, Coca-Cola (-0.59%), Restaurant Brands International (-4.48%) and Zoetis (-6.71%) closed the trading session with a decline. Kellogg gained 8.09%, after reversing losses and earning US$15 million in the fourth quarter of 2023. With the release of its balance sheet scheduled for after the market closes, AIG rose a modest 0.52%.
Also, Blackberry fell 3.56%, following an announcement about additional job cuts to increase its profitability, while JetBlue jumped 21.58%, after US takeover specialist Carl Icahn increased his stake shareholder. The MSCI index fell 2.50%, after removing 66 companies from its benchmark index focused on China.
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