Nasdaq Index, Dow Jones, S&P 500 News: Inflation Surge Shakes Market Confidence in Rate Cuts

Key Points

• Dow experiences worst drop since last March.
• January’s inflation exceeds economist predictions.
• Tech shares lead market losses, Nvidia and Microsoft down.

Market Sell-off Amid Inflation Concerns

Tuesday’s stock market witnessed a significant downturn, with the Dow plunging over 500 points, marking its worst performance since last March. This sell-off was primarily fueled by January’s higher-than-expected inflation data, which prompted a spike in Treasury yields and cast doubt on the Federal Reserve’s ability to implement multiple rate cuts this year.

At 15:26 GMT, the Dow Jones is trading 38318.51, down 478.87 or -1.23%. The S&P 500 Index is at 4958.70, down 63.14 or -1.26% and the Nasdaq-100 Index is trading 15704.41, down 238.13, down 1.49%.

Inflation Data Surpasses Expectations

Consumer price inflation in January rose by 0.3%, with the annual rate reaching 3.1%, exceeding forecasts. These figures surpassed the predictions of a 0.2% monthly increase and a 2.9% annual rate, igniting concerns about persistent inflation.

Rate Cut Outlook Dims

The prospect of the Federal Reserve cutting rates several times in 2024 is now less certain, contributing to the bearish sentiment in the equity market. The CME FedWatch Tool indicates a mere 36.6% chance of a rate cut in May, a steep drop from 52.2% just a day earlier. The likelihood of rates remaining steady has risen to 60.8%.

Yield Predictions and Tech Sector Impact

Some investors anticipate 10-year Treasury yields climbing above 5.00%. The tech sector, a major driver of recent market highs, was notably impacted. Shares of major tech companies like Nvidia, Microsoft, and Amazon led the losses, with Amazon dropping 3%, and Nvidia and Microsoft both falling by 2%.

Upcoming Economic Data

Attention is now turning to upcoming economic releases, including January retail sales and the producer price index, which could further influence market movements.

Short-term Market Forecast

In the short term, the market is likely to remain under pressure due to these inflation concerns and the evolving interest rate outlook. Investors should prepare for continued volatility, especially in sectors sensitive to interest rate changes. The upcoming economic data will be critical in shaping market expectations.

Technical Analysis

E-mini Nasdaq-100 Index futures are sharply lower on Tuesday after confirming yesterday’s bearish closing price reversal top. This chart pattern, which occurs following a prolonged move up in terms of price and time, often leads to a 2-3 day correction.

The intial downside target zone at 17671.50 to 17565.30 has been reached. If this move fails as support then look for the selling to possibly extend into the uptrending 50-day moving average at 17054.28.