Stock Market Today: Wall Street Falls After Inflation Report Burns Hopes For June Rate Cut

NEW YORK — U.S. stocks are slumping Wednesday on concerns that what appeared to be a failure in the fight against inflation could turn into a trend.

THE&The P 500 was down 1% during a wipeout in which about nine out of 10 stocks in the index fell. The Dow Jones Industrial Average was down 467 points, or 1.2%, as of 2:04 p.m. Eastern Time, and the Nasdaq Composite Index was down 0.9%.

Treasury yields also jumped in the bond market, increasing pressure on the stock market, after a report showed inflation was higher last month than economists expected. It's the third consecutive report suggesting that progress in reducing high inflation may be stalling.

There are still embers of inflation here and there in the economy, said Joe Davis, chief global economist at Vanguard.

For shoppers, this is painful because of the possibility of even higher prices in store. For Wall Street, it's painful because it could convince the Federal Reserve to refrain from cutting the interest rates that traders dream of and bet on.

THE&The P 500 has already surged more than 20% since Halloween, partly on expectations that the Federal Reserve will cut its main interest rate, which stands at its highest level in more than two decades. Such cuts would ease pressure on the economy and encourage investors to pay higher prices for stocks, bonds, cryptocurrencies and other investments.

But the Fed waited until it saw more evidence that inflation was moving sustainably toward its 2% target. After an encouraging cooling last year, the fear is now that inflation will remain stuck after inflation reports for January, February and March came in hotter than expected, along with data on the economy in general.

Two data points don't determine a trend, but maybe three, said Brian Jacobsen, chief economist at Annex Wealth Management.

If we get one more reading like this, the Fed's discussions will shift from whether to cut rates to whether to raise rates.

Prices of everything from bonds to bitcoin to gold fell immediately after the morning inflation data was released.

The 10-year Treasury yield jumped to 4.54% from 4.36% Tuesday evening. The two-year yield, which moves more based on expectations about Fed action, rose to 4.95% from 4.74%.

Traders sharply reduced their bets that the Fed could begin cutting rates in June. They now see a probability of 17%, compared to almost 74% a month ago, according to the CME Group's FedWatch tool.

Perhaps more importantly, traders have bet more on a Fed rate cut just twice this year. At the start of the year, they predicted six or more cuts through 2024.

High interest rates have the effect of dampening inflation by slowing the economy and hurting investment prices. The fear is that rates that are too high for too long could cause a recession.

Wall Street's biggest losers are real estate investment trusts, utility companies and other stocks that tend to be hit hardest by high interest rates.

Real estate values ​​in the S&The P 500 fell 4.3%, by far the biggest loss among the 11 sectors that make up the index. That included a 5.7% decline for office landlord Boston Properties and a 5.3% fall for Alexandria Real Estate Equities.

Critics had previously said the U.S. stock market seemed overpriced in several ways. Either interest rates had to fall or corporate profits had to recover to make stock prices more reasonable. The hope on Wall Street is that the resilience of the U.S. economy can help support earnings, even as it dims hopes of a rate cut.

Major U.S. companies are flocking to the podiums to say how much profit they made in the first three months of the year, and Delta Air Lines helped kick off the reporting season by posting better-than-expected results.

The airline said it is seeing strong demand for flights around the world and expects that strength to continue into the spring. Its stock rose up to 4% in the morning before falling back to a loss of 2%. Other airline stocks also fell, including a 2% loss for United Airlines.

The banking sector will soon be in the spotlight during earnings season, with JPMorgan Chase and Wells Fargo among those reporting on Friday.

In foreign stock markets, indices were mixed across much of Europe. In Asia, stocks rose 1.9% in Hong Kong but fell 0.7% in Shanghai after Fitch Ratings lowered its outlook for China's public finances.

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AP Business writers Matt Ott and Elaine Kurtenbach contributed.