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What is Going On with the Stock Market Today: Dow Falls 500 Points After CPI Inflation Report

In a dramatic turn of events, the stock market experienced a significant downturn today, with the Dow Jones Industrial Average plummeting by 520 points, marking its worst day since March 2023. The sharp decline was triggered by the release of the Consumer Price Index (CPI) report, which revealed higher-than-expected consumer inflation.

The consumer price index climbed 3.1% year over year in January, according to data from the Bureau of Labor Statistics. Although this is a slight decrease from the 3.4% pace set in December, it still contributed to a heightened sense of concern among investors. The CPI report exceeded economist expectations, with a consensus anticipating a 2.9% increase.

Stocks, however, managed to rally from their session lows in the final hour of trading on Tuesday, offering a glimmer of hope amid what has been dubbed a “dreadful Consumer Price Index day.” The broader market also felt the impact, with the S&P 500 dropping 1.4%, and the Nasdaq Composite falling 1.8%.

Despite the steep decline, it’s crucial to note that the big three indexes – Dow Jones Industrial Average, S&P 500, and Nasdaq – are still trading higher year to date, up 1.6%, 3.8%, and 4.3%, respectively. This indicates that while the recent plunge is significant, the overall trajectory for the year remains positive.

The bond market reacted strongly to the CPI report, with the 2-year Treasury yield experiencing its largest one-day gain since May 5, surging to 4.654%. The 10-year yield also rose to 4.315%, its highest at 3 p.m. ET since Nov. 30. These movements in bond yields reflect the market’s reassessment of the possibility of future rate cuts by the Federal Reserve.

Sevens Report Research’s Tom Essaye highlighted that while the CPI report didn’t show a substantial uptick in inflation, it did temper expectations for a market that had been pricing in rate cuts sooner rather than later. This sentiment is echoed in the CME FedWatch tool, where the odds of the Federal Reserve keeping rates steady through the June meeting jumped from 3.2% to 24.2% in just a week.

Looking ahead, market observers are placing increased emphasis on Thursday’s growth data, as the market’s bullish outlook hinges on a combination of rate cuts and stable economic growth. If growth figures disappoint, concerns about stagflation could intensify, potentially leading to a rapid unwinding of the market’s recent gains.

In the commodities market, U.S. natural gas futures are testing fresh three-and-a-half-year lows, reflecting concerns about surplus storage amid recovering U.S. production levels. On the flip side, crude oil futures are on the rise for a seventh consecutive session, supported by geopolitical tensions in the Middle East and expectations of increased demand after February 15. The ongoing Israel-Hamas war adds an element of uncertainty to the crude oil market.

The stock market’s sharp decline today, triggered by the CPI report, underscores the delicate balance between inflationary pressures and market expectations. As investors navigate this challenging landscape, the focus remains on economic growth data and its implications for future Federal Reserve actions, providing a key determinant for the market’s trajectory in the coming weeks.