US stocks are falling after a report said inflation is unexpectedly getting worse for Americans.
US stocks are falling after a report said inflation is unexpectedly getting worse for Americans.
By Stan Choe
February 13, 2025 — 4.14am
US stocks are falling after a report said inflation is unexpectedly getting worse for Americans.
The S&P 500 was 0.2 per cent lower in afternoon trading. The Dow Jones was down 169 points, or 0.4 per cent and the Nasdaq composite was mostly unchanged. All three indexes have been unsteady since opening sharply lower, with the S&P 500 down as much as 1.1 per cent in the morning.
The Australian sharemarket is set to rise, with futures at 4.55am AEDT pointing to a gain of 22 points, or 0.3 per cent, at the open. The ASX added 0.6 per cent on Wednesday.
Treasury yields also climbed in the bond market, cranking up the pressure on financial markets after a report said US consumers had to pay prices for eggs, petrol and other costs of living that were 3 per cent higher overall in January than a year earlier. That was worse than the 2.9 per cent inflation rate of December, which is what economists expected to see again.
The inflation report suggests not only that pressure on US households’ budgets is amplifying but also that traders on Wall Street were correct to forecast the Federal Reserve will deliver less relief for Americans through lower interest rates this year.
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The Fed had cut its main interest rate sharply from September through the end of last year, moves that try to make borrowing cheaper, help the economy and boost prices for stocks, bonds and other investments. But the Fed warned at the end of 2024 it may not cut rates by as much in 2025 as earlier expected because of worries about inflation staying stubbornly high. Its goal is to keep inflation at 2 per cent, and lower rates can give inflation more fuel.
Some investors were betting on the Fed not cutting rates at all in 2025, even before Wednesday’s report on the consumer price index, or CPI.
“The hotter than expected CPI confirms investors’ anxiety regarding too-hot inflation that will keep the Fed on the sidelines,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.
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And January’s reading doesn’t account for any of the tariffs that President Donald Trump ′ has recently announced, which economists expect will raise prices for imports further. Tariffs “will make their impact felt later in the year,” Samana said.
Following January’s discouraging inflation data, traders are betting on a roughly 30 per cent chance that the Fed will not cut rates at all this year, according to data from CME Group. That’s up from a less than 20 per cent chance seen the day before.
Such expectations sent the yield on the two-year Treasury up to 4.37 per cent from 4.29 per cent late Tuesday. The 10-year Treasury yield, which also takes longer-term economic growth and other factors into consideration, jumped even more sharply. It rose to 4.63 per cent from 4.54 per cent.
When a 10-year Treasury, which is seen as one of the safest investments possible, is paying that much in interest, investors are less likely to pay high prices for stocks, which carry a higher risk of seeing their prices go to zero. That puts downward pressure on US stock prices that critics say already look too expensive after running to repeated records last year, with the latest for the S&P 500 coming last month.
Smaller companies took some of the worst hits, and the Russell 2000 index of smaller stocks fell a market-leading 0.7 per cent. They can feel the harshest pain from higher interest rates, in part because of the need for many to borrow to grow, along with their stocks often being seen as riskier than others.
One of the few ways companies have to counteract such downward pressure on their stock prices is to deliver stronger profits.
CVS Health did just that, and its stock jumped 16.2 per cent after easily topping Wall Street’s revenue and profit expectations for the latest quarter.
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But even doing that isn’t always enough. Ride-hailing app Lyft slipped to a 3.3 per cent loss despite reporting stronger profit than Wall Street expected. Lyft’s revenue for the final three months of 2024 fell just short of analysts’ forecasts.
Homebuilders, housing-related retailers and other companies that can feel pain from mortgage rates staying higher also weighed heavily on the market. Home Depot fell 2.1 per cent, Builders FirstSource sank 3.8 per cent and Lennar dropped 3.1 per cent.
Owners of real estate likewise fell sharply. Boston Properties, which owns buildings in San Francisco, Boston and other big cities, fell 1.7 per cent.
Shares of Frontier Group Holdings, the parent company of Frontier Airlines, lost 2.4 per cent after Spirit Airlines rejected a third takeover bid from the budget rival. Spirit said that it would focus on its own plan to emerge from the protection of a US bankruptcy court and stabilize its finances.
In stock markets abroad, indexes were mostly higher across much of Europe and Asia.
AP
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