Today's Wall Street session starts in a clearly weaker mood following the release of US CPI inflation data, which once again came in above market expectations.
Major US equity indices opened lower, with Nasdaq leading the declines as it remains the most sensitive to rising bond yields and the prospect of higher interest rates staying elevated for longer. The negative sentiment is broadly visible across the entire market as investors reduce exposure to risk assets and reprice expectations toward a more hawkish Federal Reserve stance.
Annual CPI inflation accelerated to 3.8%, reaching its highest level since May 2023, while core inflation also came in stronger than forecast. The data immediately triggered a rise in US Treasury yields and a sharp deterioration in equity market sentiment.
The main source of inflationary pressure continues to be housing and rental costs, the shelter component, which still accounts for the largest share of the CPI basket. At the same time, energy prices have accelerated noticeably, especially fuel and broader energy services, becoming one of the key drivers of recent inflation dynamics. The impact of heightened geopolitical tensions and the ongoing conflict in the Persian Gulf is also becoming increasingly visible, contributing to higher oil and fuel prices. Additional pressure comes from rising transportation services and persistently elevated inflation in the services sector.
Equity markets are increasingly worried about a “higher for longer” scenario, meaning interest rates remaining elevated for an extended period. Just a few months ago, investors were pricing in the start of a rate-cutting cycle in the second half of the year, but today’s data has pushed that scenario further out. Market participants are now increasingly concerned that if inflation remains elevated in the coming months, the Fed may not only keep policy restrictive for longer, but could even be forced to tighten further and deliver additional rate hikes.
An additional concern for markets is the fact that inflation pressures are no longer limited to energy alone. Core inflation is also accelerating, suggesting that price pressures are broadening across the economy. This is particularly worrying for the Fed, as it increases the risk of inflation becoming more entrenched at elevated levels.
Source: xStation5
Futures on the S&P 500 index (US500) are trading lower today, with selling pressure driven primarily by the stronger-than-expected US consumer inflation reading. The data has reinforced concerns that the Federal Reserve may need to keep monetary conditions restrictive for longer, delaying expectations for rate cuts. There is also a growing fear that persistent inflation could even push the Fed toward a more hawkish stance and potentially additional rate hikes.
Source: xStation5
Company news
Broadcom (AVGO.US) is slightly lower despite positive analyst sentiment ahead of its quarterly earnings release. The market continues to see strong potential in AI infrastructure development and partnerships with companies building artificial intelligence models. However, after a strong recent rally in the semiconductor sector, some investors are taking profits.
Alphabet (GOOG.US) (GOOGL.US) remains under pressure following reports that AI-powered tools were used in attempts to carry out advanced cyberattacks. The issue once again highlights rising cybersecurity risks and potential vulnerabilities associated with the rapid development of artificial intelligence technologies.
Bristol Myers Squibb (BMY.US) is edging higher after announcing a broad collaboration in research and development of new therapies. The partnership covers oncology, hematology, and immunology projects, and the market views the deal as a potential boost to the company’s drug pipeline and long-term growth prospects.
Salesforce (CRM.US) is under slight pressure after Citi lowered its price target ahead of upcoming quarterly results. The adjustment reflects more cautious expectations regarding near-term growth in the software sector, although long-term AI-driven prospects remain supportive for the company.
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