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The major market averages dropped on Wednesday, while Treasury yields popped as investors received the latest CPI report which came in hotter than forecasted.
Early on and the Nasdaq Composite (COMP:IND) was -0.9%, the S&P 500(SP500) was -0.8%, and the Dow (DJI) was -1%.
The March Consumer Price Index came in at +0.4% which was stronger than the forecasted +0.3% print and in-line with the prior months figure. At the same time, core CPI also came in stronger than anticipated at +0.4% versus the estimated +0.3% read.
“Overall US CPI moved up to 3.48% YoY in March from 3.15% in February and 3.09% in January. This was the highest headline reading since last September. US Core CPI (ex-Food/Energy) moved up to 3.80% YoY from 3.76% in February, the first uptick in core inflation since March 2023,” Charlie Bilello Chief Market Strategist at Creative Planning noted.
The strong CPI report also suggests that the door is now closing for a June rate cut with target probabilities of a cut in June showing at 20% compared to the 54% before CPI was reported.
"The market is now pricing less than two Federal Reserve cuts this year as it takes another step in the "later and fewer" direction for the excessively dependent Fed," Mohamed A. El-Erian said.
As a result to the CPI print yields surged. The longer end 10-year Treasury yield (US10Y) jumped 13 basis points to 4.50% and the shorter end 2-year yield (US2Y) picked up 20 basis points to 4.95%.
See how Treasury yields have done across the curve at the Seeking Alpha bond page.
Apart from the inflation report, the FOMC meeting minutes will also be out today at 2:00 pm ET.