Stock Market Today: Dow Slides as Inflation Fears Linger

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The stock market was selling off Friday, unable to hold onto earlier gains, as the market wrestled with higher-than-expected inflation and the possibility of a much more aggressive Federal Reserve. Disappointing consumer sentiment data didn’t help.

In afternoon trading, the

Dow Jones Industrial Average
fell 310 points, or 0.9%, after dropping 526 points Thursday. The

S&P 500
and

Nasdaq
Composite were down 1.4% and 2.1%, respectively.

“Yesterday’s hot [consumer price index] numbers are likely to keep investors guessing in terms of what the Fed has planned for rates over the next several quarters,” wrote Michael Sheldon, chief investment officer of RDM Financial Group.

Thursday, the major indexes all fell more than 1% after data showed that inflation rose at a faster clip than expected in January. With markets unable to pinpoint when inflation will peak, the idea that the Fed may raises rates by 50 basis points in March, rather than 25 basis points, now seems highly plausible. There’s a 56% chance of a 50 basis point hike at the Fed’s next meeting, according to the fed funds futures market. 

That sent bond yields higher on Thursday. The 2-year Treasury yield, which tries to forecast the level of short-term interest rates over the next couple of years, was up to 1.53% on Friday from around 1.36% just before the inflation result Thursday. The 10-year Treasury yield on Friday was sitting at just under 2%, its highest level since 2019. 

While expectations are that the Fed is getting more aggressive, those bets are down slightly from their peaks, and that was helping stocks recover on Friday morning, before the market reversed those gains. Both of those Treasury yields are below their highest levels from Thursday, and the chances of a 50 basis point rate hike are down from 96% Thursday.

But then came the poor consumer sentiment result. At some point, inflation will make consumers less willing to spend money. The University of Michigan’s consumer sentiment survey fell to 61.7 in February, the lowest level in a decade and below expectations for 67.5. “Consumers are really unhappy with the economy,” wrote Bill Adams, chief economist at Comerica bank.

Also not helping the stock market were signs of increased tensions between Russia and Ukraine. U.S. National Security Advisor Jake Sullivan said in a Friday White House Press briefing that…