By STAN CHOE, DAMIAN J. TROIS and ALEX VEIGA
NEW YORK (AP) — Stocks ended slightly lower on Wall Street on Tuesday after investors weighed new data showing signs that inflation eased slightly in March, although it remained overall at its highest level in 40 years.
The S&P 500 fell 0.3% after rising 1.3% earlier in the day. The pullback extends the benchmark’s losing streak to a third day, reflecting investor concerns about potential collateral economic damage as the Federal Reserve more aggressively tackles high inflation.
The Dow Jones Industrial Average and the Nasdaq composite each fell 0.3% after losing early gains.
The indices initially rallied after the release of the report, which showed inflation last month was again at its highest level in generations, particularly due to soaring gasoline prices. Still, the reading was relatively close to economists’ expectations.
Another silver lining was that inflation was not as bad as economists had expected, ignoring food and fuel costs. Known as “core inflation,” this is the reading the Federal Reserve pays more attention to when setting policy because it is less volatile. And underlying month-on-month inflation moderated to its lowest level since September.
“Hopefully it’s as bad as it gets,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
“The risk is that a hot labor market will cool under the force of these higher food, fuel and financing costs. This is a time when economic resilience will be tested.
The S&P 500 fell 15.08 points to 4,397.45. The Dow fell 87.72 points to 34,220.36 and the Nasdaq lost 40.38 points to 13,371.57.
Small company stocks held up better than the broader market. The Russell 2000 rose 6.61 points, or 0.3%, to 1,986.94.
In recent days, stocks have been trading in the opposite direction to Treasury yields, which have risen to their highest levels since well before the pandemic. Yields jumped as investors brace for the Federal Reserve to raise short-term rates at a faster than usual pace and aggressively reduce its stock of bonds, the accumulation of which has helped to keep long-term rates low.
But Treasury yields fell on Tuesday after the inflation report. The 10-year yield slipped to 2.72% from 2.77% Monday night. It was as high as 2.83% overnight, before the release of the inflation report. The 10-year rate nevertheless remains well above the level of 1.51% where it started the year.
Stocks elsewhere in the world closed lower or mixed as unease continues to loom over markets over the war in Ukraine, China’s efforts to contain COVID outbreaks and the direction inflation and interest rates.
The price of US crude oil climbed 6.7% to settle at $100.60, keeping inflation pressure high. Brent, the international standard, rose 6.3% to settle at $104.64.
Higher interest rates from the Federal Reserve would slow the economy, which would hopefully reduce high inflation. Consumer prices were 8.5% higher in March than a year earlier, accelerating from February’s inflation rate of 7.9% and the highest since 1981. To drive it down , the Fed revealed in the minutes of its last meeting that it was ready to raise short-term rates. half a percentage point, double the usual amount, in some upcoming meetings, something he hasn’t done since 2000.
The concern is that the Federal Reserve could be so aggressive in raising interest rates that it would force the economy into recession.
Rising interest rates have also put downward pressure on all kinds of investments, with those considered the most expensive being hit the hardest. This is because when investors earn more interest for holding relatively safe bonds, they are less willing to pay higher prices for riskier stocks. Technology and other high-growth stocks that have been among the stock market’s biggest recent gainers have been particularly in the spotlight.
On Tuesday, tech stocks were among the biggest drags on the S&P 500, along with health care and financial companies. Microsoft fell 1.1%, Pfizer 1.5% and Wells Fargo 1.8%.
Energy companies and retailers were among the sectors that recorded gains. Marathon Oil rose 4.2% and Ross Stores 2.5%.
Further swings could be expected for stocks as companies prepare to report earnings for the first three months of the year. Delta Air Lines, JPMorgan Chase and other major companies will kick off the reporting season on Wednesday.
During the latest round of earnings, investors will focus on any signs of consumer spending reductions and corporate reaction, said Jack Janasiewicz, portfolio manager and senior portfolio strategist at Natixis Investment Managers Solutions.
“It all comes down to their margins and how companies handle rising costs,” Janasiewicz said.
Profits were able to stay at record highs until the end of last year as companies raised the prices of their products and services enough to protect their profit margins. But the continued acceleration of inflation could put this formula to the test.
Used car dealership chain CarMax fell 9.5% after reporting disappointing results. The company said high car prices discourage buyers.
Although they can swing wildly for many short-term reasons, stock prices tend to follow the path of long-term corporate earnings.
AP Business Writer Joe McDonald contributed. Veiga reported from Los Angeles.