Stocks Drop, Bond Yields Rise After Inflation Data

On Feb 10, 2022

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A selloff in stocks intensified Thursday as bond yields rose in the wake of data showing inflation reached a new-four-decade high.

The S&P 500 fell 1.4%, trading near session lows, as four-fifths of the broad benchmark’s stocks declined in afternoon trading. The Dow Jones Industrial Average also fell, shedding 1.2%, while technology stocks were hit harder, pulling the Nasdaq Composite down 1.5%.

The moves followed new pricing data, showing inflation accelerated further to a 7.5% annual rate in January, topping economists’ forecasts and December’s 7% pace. Bond yields, meanwhile, rose to 2.018% from 1.928% Wednesday, going above 2% for the first time since 2019. The yield on two-year notes, which are particularly sensitive to interest rates, rose to 1.493% from 1.346%.

The data injected fresh uncertainty into a market that had shown some signs of stabilizing: the S&P 500 had risen seven of the past 10 trading days. Money managers say they are bracing for more volatility as investors assess the likelihood of whether the Federal Reserve will have to act more aggressively to tame inflation.

The Federal Reserve has signaled it plans to raise interest rates in 2022 in response to stubbornly high inflation. WSJ’s J.J. McCorvey explains what higher rates could mean for your finances. Photo illustration: Todd Johnson

“This trend is worrisome for equity markets as it could mean a more aggressive Fed policy response, and that concern will typically pressure equity markets,” said

Matt Peron,

director of research at Janus Henderson Investors. “We caution that markets could remain choppy for the coming months until either inflation stabilizes or the market is comfortable that the Fed is doing enough, but not too much.”

Jay Hatfield, portfolio manager of the InfraCap Equity Income ETF, said he expects the Fed to enact four rate hikes throughout the year along with a modest reduction in the central bank’s balance sheet. He believes inflation won’t start to moderate until the second half of the year.

“We believe that the stock market will stabilize once the 10-year treasury finds a bottom, Mr. Hatfield said, adding that he believes a stable level could be found at around 2%, where yields traded on Thursday.

Mr. Peron, for his part, expects the stock market will only stabilize in the second half of the year.

For now, stocks largely slid again.

All 11 sectors of the S&P 500 were in the red. Shares of fast-growing companies were hit hardest. Tech stocks in the S&P 500 dropped 2.1%, with software, IT services and…