Stocks Sink On Worrisome Inflation Data, Yields Spike On Rate Cut Delays, Dollar Rallies: What's Driving Markets Wednesday?

An inflation surprise greeted investors on Wednesday, sparking significant apprehension about the future of interest rates.

The discussion regarding Fed rate cuts seems to be postponed for the time being following a surge in the inflation rate to 3.5% in March 2024, surpassing estimates of a 3.4% increase.

What’s even more concerning is that core inflation, which excludes volatile food and energy prices, remained steady at 3.8%, defying expectations of a decline to 3.7%.

Many economists cautioned Wednesday there is no chance the Fed will reduce interest rates in June, with the likelihood of higher-for-longer interest rates gaining pace.

Money markets are pricing in a 44-basis-point reduction in rates by year-end, with September being considered the most probable option for the onset of the easing cycle. Yet there are increasing risks that September could represent the sole reduction in 2024.

By midday trading in New York, all major indices were in the red, with small caps underperforming large caps. Sector-wise, real estate stocks were the hardest hit, given their heightened sensitivity to interest rates.

Yields on two-year Treasurys spiked by 20 basis points to 4.95%, registering the widest one-day increase in more than a year. Bonds collapsed, with the iShares 20+ Year Treasury Bond ETF TLT sinking 1.6%.

The greenback served as a safe haven, with the U.S. Dollar Index (DXY), as measured by the Invesco DB USD Index Bullish Fund ETF UUP, rising by 1.1%. This marked its strongest session since the Silicon Valley Bank failure in March 2023.

Gold experienced a decline of 0.6%, while Bitcoin BTC/USD only eased by 0.2%, with both assets displaying some resilience despite the widespread market volatility.

Wednesday’s Performance In Major Indices, ETFs

The SPDR S&P 500 ETF Trust SPY plummeted 1.2% to $513.26, the SPDR Dow Jones Industrial Average DIA was 1.3% down to $383.79 and the tech-heavy Invesco QQQ Trust QQQ fell 1.1% to $437.32, according to Benzinga Pro data. 

Sector-wise, the Real Estate Select Sector SPDR Fund XLRE plummeted, down over 4%, while the Energy Select Sector SPDR Fund XLRE managed to trim losses, down only by 0.3%.

Wednesday’s Stock Movers

• Deckers Outdoor Corp. tumbled 6.8%, marking the worst performance among S&P 500 stocks, after Truist Securities downgraded the company from Buy to Hold and lowered the price target from $983 to $864.
• Extra Space Storage Inc. EXR, SBA Communications Corporation SBAC, Public Storage PSA American Tower Corporation AMT, were the weakest real estate stocks within the S&P 500, each down by about 6%.
• Nvidia Corp. rose 1.7%, marking the best performance within the Nasdaq 100, as Morgan Stanley raised the chipmaker’s price target to $1,000.
• Boeing Co. BA fell nearly 3%, representing the worst performance within the Dow Jones, as the company reported a 36.2% and 66.7% annual declines in commercial and defense shipments, respectively. Morgan Stanley and Stifel cut price targets on the stock.
• Delta Air Lines DAL reported better-than-expected first-quarter earnings, buoyed by strong travel demand. Shares fell 0.9%.
• Hexcel Corp. HXL tumbled over 11%, following the unexpected announcement late Tuesday of the appointment of Thomas C. Gentile III as chief executive officer and president.
• Regional banks fell sharply following the hot inflation data, with Flushing Financial Corporation FFIC, Valley National Bancorp VLY and ServisFirst Bancshares, Inc. SFBS each falling by 8%

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