U.S. stocks tumbled to a lower close on Wednesday after hotter-than-expected inflation data threw cold water on hopes that the Federal Reserve would begin cutting interest rates as early as June.
Market Snapshot
The Dow Jones Industrial Average fell 422.16 points, or 1.09%, to 38,461.51, the S&P 500 lost 49.27 points, or 0.95%, to 5,160.64 and the Nasdaq Composite dropped 136.28 points, or 0.84%, to 16,170.36.
Market Movers
Nvidia (NVDA) - Nvidia rose 2%. Shares of the maker of chips used in artificial-intelligence applications declined 2% on Tuesday and entered a correction, which is defined as a pullback of at least 10% from a recent high. Coming into Wednesday, Nvidia shares had fallen five of the past six trading sessions. The stock has gained 75% this year.
Alibaba (BABA) - Alibaba shares traded in the U.S. were up 2.2%. The Chinese e-commerce giant’s co-founder, Jack Ma, issued a long internal memo to employees that praised Alibaba’s current leadership, acknowledged past mistakes, and struck an optimistic tone on the company’s future growth.
TSMC (TSM) - U.S.-listed shares of TSMC rose 0.6% after trading higher in the premarket session. The company, a major supplier to Nvidia and Apple, said revenue in the January to March quarter rose 16.5% from a year earlier to NT$592.64 billion. Taiwan Semiconductor said the revenue jump was the most in any previous quarter since 2022.
SoundHound AI (SOUN) - SoundHound AI dropped 7% after the company, a maker of artificial-intelligence-voice technology, said it entered into an agreement to sell up to $150 million of stock under an at-the-market equity program.
Delta Air Lines (DAL) - Delta Air Lines topped first-quarter earnings expectations and reported record revenue. The carrier said it expects second-quarter profit of $2.20 to $2.50 a share, compared with analysts’ estimates of $2.22. Shares of Delta fell 2.3%.
Smart Global Holding (SGH) - Smart Global Holdings posted a wider-than-expected loss in its fiscal second quarter as sales fell 27% to $284.8 million and missed analysts’ estimates of $285.1 million. Shares of Smart Global, which makes computer memory and LEDs, fell 24.1%.
Hexcel (HXL) - Hexcel fell 12.4% after the maker of materials used for commercial aerospace and space and defense industries said CEO Nick Stanage would be retiring and would be replaced by former Spirit AeroSystems CEO Thomas Gentile. Analysts at BofA downgraded the stock to Underperform from Neutral.
Deckers Outdoor (DECK) - Deckers Outdoor declined 6.7% to $810.13. Analysts at Truist downgraded shares of the maker of Hoka sneakers and Ugg boots to Hold from Buy and cut the price target of $864 from $983.
Luminar Technologies (LAZR) - Luminar Technologies fell 8.3% to $1.76 after analysts at BofA Securities downgraded shares of the maker of light detection and ranging sensors to Underperform from Neutral and cut their price target to $1.20 from $3.50.
WD-40 (WDFC) - Fiscal second-quarter profit at household-products company WD-40 fell from a year earlier but global net sales rose 7%. Sales rose just 1% in the Americas—which accounted for 46% of total net sales in the second quarter—but jumped 16% in Europe, India, the Middle East, and Africa. WD-40 raised its fiscal-year earnings guidance, saying it now sees profit in the range of $5 to $5.30 a share, compared with prior guidance of between $4.78 and $5.15. Shares fell 8.6%.
Market News
US Consumer Prices Heat up in March; Seen Delaying Fed Rate Cut
U.S. consumer prices increased more than expected in March as Americans continued to pay more for gasoline and rental housing, leading financial markets to anticipate that the Federal Reserve would delay cutting interest rates until September.
The third straight month of strong consumer price readings reported by the Labor Department on Wednesday also suggested that the pick up in inflation in January and February could not be solely attributed to businesses raising prices at the start of the year as economists had argued.
The consumer price index rose 0.4% last month after advancing by the same margin in February, the Labor Department's Bureau of Labor Statistics said. Gasoline prices climbed 1.7% after increasing 3.8% in February. Shelter costs, which include rents, rose 0.4%, matching February's gain.
In the 12 months through March, the CPI increased 3.5%, the most since September. The CPI was also boosted by last year's low reading dropping out of the calculation. It rose 3.2% in February. Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% year-on-year.
Fed's "Confidence" in Disinflation Not Bolstered By Recent Data, Minutes Show
Even before U.S. inflation data on Wednesday came in hotter than expected, Federal Reserve officials had begun worrying last month that progress might have stalled and a longer period of tight monetary policy could be needed to tame the pace of price increases.
"Some" officials at the Fed's March 19-20 meeting even raised the possibility that the current 5.25%-5.50% policy rate was "less restrictive than desired, which could add momentum to aggregate demand and put upward pressure on inflation," according to minutes of the meeting released on Wednesday, the sort of logic that could be used to defend another rate hike.
Projections issued at that meeting showed no policymakers had penciled in a higher policy rate, and the two-day session took place in the context of record high stock prices and falling market interest rates.
But the comments in the minutes reflect the complicated dynamics Fed officials are navigating as they debate whether the greater risk is for monetary policy to remain too tight for too long and damage the economy, or for the central bank to ease too soon and fail to return inflation to its 2% target.
Comments