Closing: Pending rate hikes hang over the market

The S&P 500 fell 1.8% on Thursday, as rate-hike angst was fueled by the Consumer Price Index (CPI) for January and by comments from St. Louis Fed President Bullard (FOMC voter). The Nasdaq Composite (-2.1%), Dow Jones Industrial Average (-1.5%), and Russell 2000 (-1.6%) also suffered steep losses.

All 11 S&P 500 sectors closed lower with eight sectors losing at least 1.0%. The information technology (-2.8%) and real estate (-2.9%) sectors led the retreat, while the materials (-0.6%) and energy (-0.7%) sectors posted modest declines. Energy stocks received offsetting support from elevated oil prices ($89.84, +0.19, +0.2%).

Specifying the data, total CPI increased 0.6% month-over-month in January ( consensus 0.5%), and so did core CPI ( consensus 0.5%), which excludes food and energy. On a year-over-year basis, they were running at their highest levels since 1982 at 7.5% and 6.0%, respectively.

The report catalyzed losses in the equity futures market and the Treasury market, where yields jumped double-digit basis points. The 10-yr yield cracked above 2.00% and settled at 2.04%, or ten basis points above yesterday’s settlement. The 2-yr yield spiked 22 basis points to 1.56%. The U.S. Dollar Index gained 0.2% to 95.69.

To the market’s credit, each of the major indices quickly recovered their early declines (ranging from 0.8-1.9%) shortly after the open. The Russell 2000 even traded up as much as 1.0%.

The interest-rate action, however, seemed to keep a lid on the recovery effort, and the market rolled over after St. Louis Fed President Bullard told Bloomberg that he supports hiking rates by 100 basis points by July 1. The FOMC voter supported one hike being a 50-basis-point increase.

The CME FedWatch Tool was pricing in a 50% probability for a 50-bps hike in March after the CPI report. After Mr. Bullard’s comments, the probability increased to 98.6% by the close, versus 24.0% yesterday.

Even though the market was already anticipating a series of rate hikes this year, the hawkish commentary raised concerns that the Fed’s tightening plans could be more aggressive and sooner than expected because of persistent inflation pressures.

On a more positive note, the S&P 500 still closed 6.7% above its low on Jan. 24. The benchmark index has been range-bound this month, bouncing between its 200-day moving average (4451) and 50-day moving average (4611).

Separately, investors received a ton of earnings news. Dow components Walt Disney (DIS 152.16, +4.93, +3.4%) and Coca-Cola (KO 61.37, +0.33, +0.5%) closed higher after beating expectations, while Uber (UBER 37.75, -2.44, -6.1%) and Affirm (AFRM 58.82, -14.86, -21.2%) closed sharply lower following their reports. AFRM’s results were leaked early.

Reviewing Thursday’s economic data, which featured the Consumer Price Index for January:

  • Total CPI increased 0.6% month-over-month in January ( consensus +0.5%) on the heels of an upwardly revised 0.6% (from 0.5%) for December. Core CPI, which excludes food and energy, was also up 0.6% month-over-month ( consensus +0.5%) after increasing 0.6% in December. On a year-over-year basis, total CPI is up 7.5% – the highest since February 1982 – and core CPI is up 6.0% – the highest since August 1982.
  • The key takeaway from the report should be obvious: the inflation picture is getting worse, making it clear yet again that the Fed is behind the curve in fighting inflation.
  • Initial jobless claims for the week ending February 5 decreased by 16,000 to 223,000 ( consensus 234,000) while continuing claims for the week ending January 29 held steady at 1.621 million.
  • The key takeaway from the report is that it shows the labor market is back in a tighter spot with the peak of Omicron constraints having passed, and that may very well be a harbinger of ongoing wage inflation pressures for employers.

Looking ahead, investors will receive the preliminary University of Michigan Index of Consumer Sentiment for February on Friday.

  • Dow Jones Industrial Average -3.0% YTD
  • S&P 500 -5.5% YTD
  • Russell 2000 -8.7% YTD
  • Nasdaq Composite -9.3% YTD


  • Europe: DAX +0.1%, FTSE +0.4%, CAC -0.4%
  • Asia: Nikkei +0.4%, Hang Seng +0.4%, Shanghai +0.2%


  • Crude Oil +0.28 @ 89.76
  • Nat Gas -0.03 @ 3.96
  • Gold +2.40 @ 1836.00
  • Silver +0.18 @ 23.45
  • Copper +0.16 @ 4.64