NEW YORK (AP) — Stocks closed slightly lower on Wall Street on Tuesday after investors weighed new data that showed some signs that inflation slowed slightly in March, though it generally remained at its highest level. in 40 years.
The S&P 500 fell 0.3% after rising 1.3% earlier in the day. The pullback extends the benchmark index’s losing streak into a third day, reflecting investor concerns about potential economic collateral damage as the Federal Reserve tackles high inflation more aggressively.
The Dow Jones Industrial Average and the Nasdaq Composite each fell 0.3% after losing early gains.
The indices initially recovered after the publication of the report, which showed inflation last month it was back to its highest level in generations, fueled in particular by rising gasoline prices. Still, the reading was relatively close to economists’ expectations.
Another slight silver lining was that inflation was not as bad as economists expected, ignoring food and fuel costs. Known as “core inflation,” this is the reading the Fed pays more attention to when setting policy because it is less volatile. And month-on-month core inflation moderated to its slowest level since September.
“Hopefully this is as bad as it sounds,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“The risk is that a red-hot job market cools off under the force of those higher food, fuel and financing costs. This is a time when economic resilience will be tested.”
The S&P 500 fell 15.08 points to 4,397.45. The Dow fell 87.72 points to 34,220.36 and the Nasdaq lost 40.38 points to 13,371.57.
Smaller company stocks held up better than the broader market. The Russell 2000 rose 6.61 points, or 0.3%, to 1,986.94.
In recent days, stocks have been trading in the opposite direction of Treasury yields, which have risen to their highest levels since long before the pandemic. Yields rose as investors brace for the Federal Reserve to raise short-term rates at a faster-than-usual pace and aggressively pare back its treasury of bonds, the accumulation of which has helped keep long-term rates low.
But Treasury yields fell on Tuesday after the inflation report. The 10-year yield fell to 2.72% from 2.77% on Monday night. It reached 2.83% overnight, before the release of the inflation report. Nonetheless, the 10-year yield remains well above the 1.51% level at which it started the year.
Stocks in other parts of the world closed lower or mixed as uneasiness continues to weigh on markets over the war in ukraineChinese efforts to contain COVID outbreaks and where inflation and interest rates are headed.
US crude oil prices rose 6.7% to settle at $100.60, maintaining pressure on high inflation. Brent crude, the international standard, rose 6.3% to close at $104.64.
Higher interest rates from the Federal Reserve would slow the economy, which would hopefully bring down high inflation. Consumer prices rose 8.5% in March from a year earlier, accelerating from February’s 7.9% inflation rate and the highest since 1981. To bring it down, the Fed revealed in the minutes of its latest meeting that is prepared to raise rates in the short term. by half a percentage point, twice as much as usual, at some upcoming meetings, something it had not done since 2000.
The concern is that the Federal Reserve could be so aggressive in raising interest rates that it forces the economy into a recession.
Higher interest rates also put downward pressure on all types of investments, with the most expensive ones taking the biggest hit. This is because when investors earn more in interest from holding relatively safe bonds, they are less willing to pay higher prices for riskier stocks. Technology and other high-growth stocks that have been some of the stock market’s biggest recent gainers have been in the spotlight in particular.
On Tuesday, technology stocks were among the biggest drags on the S&P 500, along with health care and financial companies. Microsoft fell 1.1%, Pfizer lost 1.5% and Wells Fargo slipped 1.8%.
Energy companies and retailers were among the sectors that posted gains. Marathon Oil was up 4.2% and Ross Stores was up 2.5%.
More stock swings may be on the way as companies prepare to report earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other big-name carriers will kick off reporting season on Wednesday.
A key focus for investors during the latest round of earnings will be any signs of consumers cutting back on spending and how companies reacted, said Jack Janasiewicz, portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions.
“It all comes down to your margins and how companies deal with rising costs,” Janasiewicz said.
Profits were able to stay at record levels through the end of last year as companies raised the prices of their products and services enough to protect their profit margins. But the greater acceleration of inflation may be forcing that formula.
Used car dealer chain CarMax slumped 9.5% after reporting disappointing earnings. The company said high car prices were putting buyers off.
While they can swing wildly for many short-term reasons, stock prices tend to go the way of long-term corporate earnings.
AP business writer Joe McDonald contributed. Veiga reported from Los Angeles.
Stan Choe, Damian J. Troise, and Alex Veiga, Associated Press