T&G Market Recap: Dow Leads Stocks Lower as Hot Inflation Data Pushes Back Rate Cut Hopes 📉

Hot inflation data shakes up market expectations for Fed rate cuts 🏦

US stocks were largely lower on Wednesday as investors processed a hotter-than-expected January inflation reading and adjusted their expectations for Federal Reserve interest rate cuts in 2025. The Dow Jones Industrial Average (^DJI) dropped 0.5%, while the S&P 500 (^GSPC) slipped 0.3%. The Nasdaq Composite (^IXIC) finished just slightly above the flatline.

Inflation Data Surprises: Core CPI Up 0.4% 📈

The Consumer Price Index (CPI) report for January showed headline inflation rising 3% year-over-year, higher than the expected 2.9%. On a month-over-month basis, CPI rose 0.4%, in line with economists' projections. However, the core CPI—which excludes food and gas—surged 0.4% over the previous month, reversing the deceleration seen in December.

This unexpected uptick in inflationary pressures has led traders to scale back expectations for interest rate cuts from the Federal Reserve. Earlier in the year, markets had priced in two rate cuts, but now they’re expecting only one cut later in 2025. As a result, the 10-year Treasury yield (^TNX) rose to 4.64%, marking its highest level in over two weeks.