US Stock market today: Inflation data spooks markets as Dow closes down 500 points

Investors might be feeling more confident about the US economy but the odds of a “no landing” scenario are also increasing, according to the latest Bank of America fund manager survey.

The February report, which surveyed roughly 200 participants with more than $500 billion in assets under management, noted investors are turning more bullish amid particularly strong macroeconomic data.

In fact, for the first time since April 2022, investors are no longer forecasting a recession as the majority of respondents (65%) expect the US economy to experience a “soft landing”

However, expectations are also rising when it comes to a “no landing” scenario, which would be a failed attempt of the Federal Reserve to quell inflation but, ultimately, would not result in a recession.

BofA said 19% of the investors surveyed now expect a “no landing” outcome, up from 7% last month. That number is also higher than the percentage of folks who expect a “hard landing” at 11%.

The latest inflation reading will likely add to the “no landing” camp with “core” prices, which exclude the volatile food and energy categories, increasing 0.4% in January, their largest monthly gain since April 2023.

On a headline basis, prices increased 3.1%, above economist estimates but still decelerated from a 3.4% annual gain in December.

It’s been a rough day for markets following a hotter-than-expected January inflation report.

By mid-afternoon trading, all three major indexes sank roughly 2% with the Dow Jones Industrial Average (^DJI) plunging around 700 points, or 1.8%.

The S&P 500 (^GSPC) also dropped nearly 2% while the tech-heavy Nasdaq Composite (^IXIC) led the day’s sharp declines.

Here are some of the stocks leading the Yahoo Finance ticker page in afternoon trading on Tuesday:

Shopify (SHOP): Shares fell more than 10% on Tuesday after the e-commerce giant reported mixed guidance for the current quarter, despite beating Q4 earnings and revenue estimates. Shopify said it expects revenue to grow at a low-20s percentage rate, slightly above consensus estimates. Free cash flow guidance, however, disappointed as the company expects higher operating expenses in Q1 compared to Q4.

JetBlue (JBLU): Shares surged nearly 20% after activist investor Carl Icahn disclosed a 9.91% stake in the airline operator. The news follows JetBlue’s blocked merger with Spirit Airlines (SAVE). Icahn is reportedly in talks to acquire a board seat.

The Coca-Cola Company (KO): Shares traded flat on Tuesday after the beverage maker topped sales estimates in the fourth quarter, driven by resilient demand in the face of higher prices. Wall Street analysts, however, pointed to some softness in the company’s guidance as earnings growth is expected to slow.

US stocks tumbled in afternoon trading, retreating from recent highs as inflation came in hotter than expected last month.

All three major indexes sank more than 1% on the heels of the report.

The S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) each fell about 1.2% while the tech-heavy Nasdaq Composite (^IXIC) led the declines, dropping about 1.5%.

Treasury yields, meanwhile, climbed higher.

The yield on the 10-year Treasury note (^TNX) ticked up about 11 basis points to trade near 4.3% while the 30-year yield jumped about 8 basis points to trade around 4.4%.

The hotter-than-expected January Consumer Price Index (CPI) report has investors betting the Federal Reserve may not cut interest rates as soon as initially hoped.

Bets on a March interest rate cut are now all but gone. Pricing on the CME FedWatch Tool now places a 39% chance the Fed cuts in May, down from a 67% chance just a week ago.

“Today’s CPI report reinforces the Fed’s concern that core services inflation will remain sticky because of a tight labor market,” Bank of America US economist Stephen Juneau wrote in a research note on Tuesday. “In our view, a March cut is now firmly off the table and the chances of a May cut have significantly reduced. But we remain comfortable with our call for rate cuts to begin in June.”

Notably, the amount of interest rate cuts being priced into the market for all of 2024 moved further on Tuesday, too. Investors now see about four cuts for the year, per data compiled by Bloomberg.

The sentiment that fewer rate cuts may come this year than previously expected has played out in Tuesday’s market action. Interest rate sensitive areas of the market, such as small caps (^RUT) and the Real Estate (XLRE) sector, sold off.

Paramount Global (PARA) will lay off hundreds of employees following a record-setting Super Bowl that garnered more than 123 million viewers on CBS Sports.

The job cuts, which will take place Tuesday, will impact about 800 employees, or roughly 3% of Paramount’s workforce, sources familiar with the matter told Yahoo Finance.

In an internal memo to employees, Paramount CEO Bob Bakish reiterated previous rhetoric that layoffs are necessary in order to return the company to earnings growth, maintaining: “I am confident this is the right decision for our future.”

“These adjustments will help enable us to build on our momentum and execute our strategic vision for the year ahead – and I firmly believe we have much to be excited about,” he continued.

Shares, which are down about 13% since the start of the year, fell 4% Tuesday following the news.

Paramount’s layoff announcement comes as M&A rumors swirl. Most recently, media mogul Byron Allen reportedly offered $14.3 billion to buy all of the company’s outstanding shares.

Outside of Byron Allen, production studio Skydance Media and investment firm RedBird Capital have also expressed interest in a deal. Private equity firm Apollo Global Management, the parent company of Yahoo Finance, along with competitor Warner Bros. Discovery (WBD) are also rumored as potential buyers.

Last week, Bakish told Yahoo Finance’s Brian Sozzi the company is open to dealmaking.

“In parallel, we are always looking at alternate ways of creating shareholder value, including potentially through transactions,” the executive said. “We will have to see if anything happens in that regard.”

Paramount will report its fourth quarter and full-year 2023 earnings results on Feb. 28.

US consumer prices rose more than expected in January, according to the latest data from the Bureau of Labor Statistics released Tuesday morning.

Investors had been closely watching the print for clues on when the Federal Reserve will begin cutting interest rates. Markets are now pricing in a nearly 80% chance the Fed cuts rates in June, bucking previous expectations that the central bank would begin cutting rates in May.

“This was a bad report for those betting the Fed is going to start decreasing interest rates soon,” Eugenio Aleman, chief economist at Raymond James, wrote in reaction to the hotter-than-expected print.

Ellen Zentner, chief US economist at Morgan Stanley, added: “The acceleration in core PCE is aligned with our view of a bumpy path ahead. We think that sequential prints in the first quarter of 2024 will be overall higher than what we have seen in the last 6 months. This acceleration will be one factor delaying the decision to start cutting rates to June this year.”

Citi, meanwhile, warned that the hot inflation print will likely have an impact on the recent stock market rally.

“Strong core CPI is not a game changer but likely to drive a short-term pullback,” Stuart Kaiser, head of Citi’s US equity trading strategy, wrote. “With strong growth data in the background, it will be hard for the Fed to cut as early as some investors hoped and raise market concerns about an overheating type scenario despite very restrictive policy.”

“We should get a pullback here, maybe in the 2-4% type range, but that is somewhat limited by the fact that the economy is still quite strong,” he continued.

Stocks tumbled in early trading following the report while the yield on the 10-year Treasury note (^TNX) ticked about 10 basis points higher to trade near 4.3%.

A hotter-than-expected January Consumer Price Index report sent stocks tumbling on Tuesday.

S&P 500 (^GSPC) sank 1.3%, after the benchmark faltered Monday in its bid to keep its historic rally above 5,000 going. The Dow Jones Industrial Average (^DJI) fell about 0.9%, losing grip of a record closing high, while those on the tech-heavy Nasdaq Composite (^IXIC) dropped about 2% to pace declines.

The Technology (XLK), Consumer Discretionary (XLY), and Real Estate (XLRE) sectors were all down about 2%.

Consumer prices increased more than expected in January.

The January Consumer Price Index (CPI) showed prices ticked up slightly at 0.3% over last month, an increase from the 0.2% seen in December. Prices rose 3.1% over the prior year, a decrease from the 3.4% increase seen the month prior.

Economists had expected prices to increase 0.2% month over month and rise 2.9% year over year, according to Bloomberg data.

When removing the volatile food and energy categories, “core” inflation remained unchanged from the month prior at an annual rate of 3.9%. Economists surveyed by Bloomberg had expected core inflation of 3.7%. On a monthly basis, core inflation was 0.4%, unchanged from the 0.3% seen the month prior