[New York Stock Market] Possibility of 0.5%p Rate Hike in March Due to Inflation Shock... Nasdaq Falls 2.10%

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[Asia Economy New York=Special Correspondent Joselgina] The three major indices of the U.S. New York stock market all closed lower on the 10th (local time) as selling pressure intensified immediately after the release of inflation data. January's U.S. Consumer Price Index (CPI) recorded the largest increase in 40 years, deepening concerns about tightening monetary policy. Hawkish remarks suggesting that the Federal Reserve (Fed), the central bank, could raise rates by 0.5 percentage points at once caused the market to slide, and the 10-year U.S. Treasury yield surpassed the 2% mark for the first time since August 2019.

On that day, the Nasdaq Composite Index, which is sensitive to interest rates and tech-heavy, closed at 14,185.64, down 2.10% from the previous session. The Dow Jones Industrial Average fell 1.47% to 35,241.59, and the S&P 500 dropped 1.81% to 4,504.08.

By sector, utilities and technology stocks, which are sensitive to interest rate hikes, showed declines. Tesla fell 2.93% from the previous close, barely holding the 904 level. Apple (-2.43%), Amazon.com (-1.35%), Nvidia (-3.28%), Microsoft (-2.89%), and Netflix (-1.60%) also could not avoid losses. Fintech company Affirm accidentally released earnings just before market close, resulting in a sharp 20% drop. Even financial stocks, which usually benefit from rate hikes, failed to gain strength. JPMorgan Chase fell 0.44%, and Bank of America (BoA) dropped 0.49%.

On the other hand, Walt Disney, which reported better-than-expected earnings the previous day, closed up 3.35%. Coca-Cola also ended the session higher after releasing its earnings.

Investors focused on the January CPI released by the U.S. Department of Labor that morning. January CPI surged 7.5% year-over-year, marking the largest increase since February 1982. It exceeded market expectations and was higher than the previous month’s 7.0%. The core CPI, excluding volatile energy and food prices, also soared 6.0% year-over-year, which was the highest since August 1982.

Immediately after the CPI release, the New York bond market saw Treasury yields soar amid expectations that the Fed would accelerate tightening. The 10-year U.S. Treasury yield surpassed 2% for the first time since August 2019. The 2-year Treasury yield, which is sensitive to central bank policy, jumped more than 0.2 percentage points at one point during the session.

Market volatility increased further following remarks suggesting more aggressive tightening ahead. James Bullard, President of the Federal Reserve Bank of St. Louis, appeared on Bloomberg right after the CPI release and said an aggressive "big shot" hike of 1.0 percentage point by July 1 is necessary. He emphasized, "In the past, after such a report, the Fed would have met and raised rates immediately," adding, "Inflation has risen to the highest level in 40 years, so we need to be more agile and responsive to this data."

To raise rates by 1.0 percentage point over the remaining three Federal Open Market Committee (FOMC) meetings before July 1, rate hikes of 0.5 percentage points per meeting, rather than the usual 0.25 percentage points, must be implemented. A 0.5 percentage point hike at once would be the first since the 2000s. On that day, federal funds futures priced in about a 90% chance of a 0.5 percentage point hike. Citi economists revised their forecast to expect a 0.5 percentage point increase at the March FOMC.

Barry Gilbert, strategist at LPL Financial, said, "January inflation surprised the market again, sustaining concerns that the Fed may act aggressively," adding, "Market anxiety over the possibility of intensified Fed tightening will not subside until clear signs of inflation control appear." The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s "fear gauge," rose 19.79% from the previous day to around 23.91.

New York crude oil prices rose that day as investors monitored negotiations to restore the Iran nuclear deal (JCPOA - Joint Comprehensive Plan of Action) and tensions between Russia and Ukraine. On the New York Mercantile Exchange, March West Texas Intermediate (WTI) crude closed at $89.88 per barrel, up $0.22 (0.3%) from the previous session.