AE Wealth Management: Market Minute | 02/14/24

Markets drop as inflation stays stuck above 3%

Inflation rates appear to be stuck. That’s according to the January Consumer Price Index (CPI) report, which showed inflation increased by 3.1% year over year. Core prices (CPI excluding food and energy) rose 3.9% from January 2023.

The increase wasn’t good news for markets, which have been counting on the Federal Reserve to start cutting interest rates soon. However, Fed Chair Jerome Powell said at the last meeting that they need to see the numbers cooperate before they will consider cutting rates. With inflation stuck above 3%, the data just isn’t there to support rate cuts anytime soon.

The Dow dropped nearly 525 points in response, its largest one-day drop in nearly a year. The S&P 500 fell back below the 5,000 mark, while the Nasdaq fell 1.8% and the Russell 2000 tumbled nearly 4% for its worst intraday performance since June 2022. Treasury yields, which have been inching their way down, also popped back up following the CPI report.

Markets have ignored signs (and comments from the Fed) that it was too soon for rate cuts as they’ve pushed upward over the last 15 weeks. Now that markets seem to be paying attention, they may start to worry that the Fed will hold rates too high for too long and potentially drive us into a recession. This week’s drop could be the opening volley of a rough patch for markets.

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