Wall Street falls as stronger inflation data dents rate cut hopes

Wall Street falls: Stock indexes on Wall Street took a hit on Wednesday following a stronger-than-expected inflation report, which dampened hopes of an early start to the Federal Reserve's monetary easing cycle.

The Labour Department's report revealed that the Consumer Price Index (CPI) rose 0.4 per cent on a monthly basis in March, exceeding economists' expectations of a 0.3 per cent increase. Annually, the CPI increased by 3.5 per cent, slightly above the estimated 3.4 per cent growth.

Excluding volatile food and energy components, the core CPI rose by 0.4 per cent month-on-month in March, compared to expectations of a 0.3 per cent increase. Annually, the core CPI gained 3.8 per cent, surpassing the estimated 3.7 per cent rise.

Robert Pavlik, senior portfolio manager at Dakota Wealth, noted that the data indicated sticky inflation, raising concerns about the Fed's future actions. He suggested that stocks may need to be re-priced for a different environment with higher inflation.

Following the release of the data, yields on government bonds surged, with the 10-year note climbing back to 4.4806 per cent - its highest level since November last year.

Traders adjusted their expectations of a Fed rate cut, now estimating that the central bank will likely wait until September before considering any cuts.

Atlanta Fed President Raphael Bostic's comments on Tuesday also indicated a cautious approach, suggesting that the Fed may refrain from cutting rates this year if inflation remains stubborn and the economy continues to perform well.

The first-quarter earnings season is set to gain momentum towards the end of the week, with banking giants like JPMorgan Chase, Citigroup, and Wells Fargo scheduled to report.

As of 9:38 am US eastern time (ET), the Dow Jones Industrial Average was down 520.39 points, the S&P 500 was down 61.30 points, and the Nasdaq Composite was down 177.10 points.

All 11 S&P 500 sectors were trading lower, with the rate-sensitive real estate sector leading the declines. Despite the overall downturn, Delta Air Lines saw a 3.9 per cent increase after offering an optimistic outlook and surpassing first-quarter earnings estimates.

Alibaba's US-listed shares gained 2.8 per cent after co-founder Jack Ma expressed support for the company's restructuring efforts in a memo to employees, a rare move from the usually reclusive billionaire.

Declining issues outnumbered advancers by a wide margin on both the NYSE and Nasdaq. The S&P index recorded no new 52-week highs and six new lows, while the Nasdaq recorded 11 new highs and 75 new lows.

(with Reuters inputs)