U.S. stocks edged lower on Thursday as Wall Street weighed another decades-high inflation print for clues on how aggressively the Federal Reserve will adjust monetary conditions to rein in surging prices levels.
The tech-heavy Nasdaq Composite recouped losses from an earlier plunge but was down 0.36% as traders continued to digest a 7.5% annual gain in January on the latest CPI read. The Dow Jones Industrial Average and S&P 500 also pared earlier declines but traded below the flatline. Meanwhile the closely-watched 10-year Treasury note jumped to 2% for the first time since August 2019.
U.S. inflation accelerated last month in the fastest rise since 1982, with prices across a wide range of goods and services soaring further amid lingering shortages and supply chain disruptions. Consensus economists were looking for a 7.3% rise, according to Bloomberg data.
"While inflation continued to overshoot the Fed's target in January, fundamental drivers of inflation are starting to improve," Commercia Bank chief economist Bill Adams said in a note. "Remember, a big part of the surge in prices was from shortages, and the economy is making big strides to reduce shortages."
Quadratic Capital Management founder Nancy Davis echoed a similar point in post-CPI commentary.
"While inflation is weighing heavily on Federal Reserve policy decisions, our current inflationary environment is unconventional and is caused largely by supply chain disruptions, something the Federal Reserve cannot fix with tighter monetary policy," Davis said.
The 10-year Treasury yield's jump to 2% pressured technology stocks in Thursday's trading session. Market heavy weights such as Apple (AAPL) (down nearly 1% to $174.65 per share as of 12:06 p.m. ET) and Alphabet (down 0.78% to $2,806.96-22.10 per share) slumped.
“Even though we see the yield curve start flattening, we are watching the 10-year very closely and the CPI number," ERShares chief operating officer and chief investment strategist Eva Ados told Yahoo Finance Live on Wednesday, adding the three most significant facors in the data are costs associated with labor, food prices, and energy.
Ados said once the 10-year Treasury hits 2%, “that will trigger a psychological level and more anxiety in markets.”
In the previous session, the indexes were lifted by an influx of strong corporate earnings. The Walt Disney Company (DIS), a component of the Dow, unveiled first quarter 2022 results after the bell on Wednesday that sharply beat estimates. Better than expected growth for the entertainment giant’s streaming service Disney+ and a recovery in theme park attendance sent shares up as much as 9% after the report. Uber (UBER) also posted results after market close, revealing quarterly revenue that topped analyst forecasts and indicated headwinds caused by the Omicron COVID surge have eased.
“Last year, it was all about ‘tell me the story and how great it is,’ while this year, it’s ‘show me the money and show me that you’re growing profitably — that you have cash flow,’” Satori Fund founder and portfolio manager Dan Niles told Yahoo Finance Live.
After a surprise shift by the Federal Reserve on how aggressively it would tighten monetary conditions rocked equities in January, investors have found relief in strong earnings over recent weeks. Bank of America said in its latest update that S&P 500 earnings per share (EPS) are exceeding consensus expectations by 6% so far for the latest quarter and tracking toward a growth rate of well over 20% on a year-over-year basis.
But as earnings season winds down, investors will turn their attention back macroeconomic concerns, with special focus on Thursday's inflation number — an annual CPI gain of 7.5% — at a 40-year high.
“We do think the focus shifts back to the macro side of the ledger this week,” Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance Live on Tuesday, adding the European Central Bank and Bank of England are tightening monetary policy along with the Fed and a series of high inflation prints are expected in coming months. “When we put that all together, we don’t think the bumpy ride is over.”