And January’s reading doesn’t account for any of the tariffs that President Donald Trump ′ has recently announced, which economists expect will raise prices for imports further. Tariffs “will make their impact felt later in the year,” Samana said.
Following January’s discouraging inflation data, traders are betting on a roughly 30 per cent chance that the Fed will not cut rates at all this year, according to data from CME Group. That’s up from a less than 20 per cent chance seen the day before.
Such expectations sent the yield on the two-year Treasury up to 4.37 per cent from 4.29 per cent late Tuesday. The 10-year Treasury yield, which also takes longer-term economic growth and other factors into consideration, jumped even more sharply. It rose to 4.63 per cent from 4.54 per cent.
When a 10-year Treasury, which is seen as one of the safest investments possible, is paying that much in interest, investors are less likely to pay high prices for stocks, which carry a higher risk of seeing their prices go to zero. That puts downward pressure on US stock prices that critics say already look too expensive after running to repeated records last year, with the latest for the S&P 500 coming last month.
Smaller companies took some of the worst hits, and the Russell 2000 index of smaller stocks fell a market-leading 0.7 per cent. They can feel the harshest pain from higher interest rates, in part because of the need for many to borrow to grow, along with their stocks often being seen as riskier than others.
One of the few ways companies have to counteract such downward pressure on their stock prices is to deliver stronger profits.
CVS Health did just that, and its stock jumped 16.2 per cent after easily topping Wall Street’s revenue and profit expectations for the latest quarter.
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But even doing that isn’t always enough. Ride-hailing app Lyft slipped to a 3.3 per cent loss despite reporting stronger profit than Wall Street expected. Lyft’s revenue for the final three months of 2024 fell just short of analysts’ forecasts.
Homebuilders, housing-related retailers and other companies that can feel pain from mortgage rates staying higher also weighed heavily on the market. Home Depot fell 2.1 per cent, Builders FirstSource sank 3.8 per cent and Lennar dropped 3.1 per cent.
Owners of real estate likewise fell sharply. Boston Properties, which owns buildings in San Francisco, Boston and other big cities, fell 1.7 per cent.
Shares of Frontier Group Holdings, the parent company of Frontier Airlines, lost 2.4 per cent after Spirit Airlines rejected a third takeover bid from the budget rival. Spirit said that it would focus on its own plan to emerge from the protection of a US bankruptcy court and stabilize its finances.
In stock markets abroad, indexes were mostly higher across much of Europe and Asia.
AP
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