FX.co ★ U.S. Stocks Remain Sharply Lower After Early Sell-Off

On Tuesday, we observed significant drops in the stocks market, with major averages dipping steeply after a narrowly mixed performance the prior day. Although the NASDAQ and S&P 500 rallied slightly from their lowest points, the Dow Jones Industrial Average experienced new lows and was down by 542.03 points (1.4%) at 38,255.35, while the Nasdaq was down 257.40 points (1.6%) at 15,685.14.

This downward trend came on the heels of a majorly anticipated Labor Department report that revealed a slight increase in US consumer prices for January. Accordingly, the consumer price index (CPI) rose by 0.3% in January, a slight increase from December's 0.2% increment. Contrarily, economists had foreseen a 0.2% increase.

Simultaneously, the report revealed a deceleration in the annual growth rate of consumer prices, falling to 3.1% in January from December's 3.4%. However, economists had projected a reduction to 2.9%. When we leave out food and energy prices, core consumer prices in January increased by 0.4% after a 0.3% rise in December, overshadowing the 0.3% projected increase.

In the same vein, the annual rate of core consumer price growth remained steady from December at 3.9%, despite predictions of a decline to 3.7%. These observations have diluted hopes of an anticipated interest rate cut by Federal Reserve officials, who indicate that they need further reassurance on decreasing inflation rates before embarking on interest rate reductions.

In line with this, the CME Group's FedWatch Tool reveals a 8.5% chance of a quarter-point rate cut in March, with the likelihood of a similar cut in early May falling to 35.3%. Quincy Krosby, Chief Global Strategist for LPL Financial, characterized the report as disheartening for Fed observers who anticipated a downtrend in inflation, prompting a quicker initiation of rate cuts by the Fed.

Gold stocks also saw a considerable decrease, with the NYSE Arca Gold Bugs Index falling by 6.6% to a four-month intraday low. This is accompanied by the decrease in the price of gold by $24.50 to $2,008.50 an ounce. Other sectors that showed signs of explicit weakness include telecom, housing steel, biotechnology, and banking stocks. The KBW Bank Index slumped by 2.9% as a result.

In overseas trading, Asia-Pacific stock markets had a mixed performance on Tuesday with the Hong Kong and mainland China markets still closed for holidays. Nevertheless, Japan's Nikkei 225 Index surged by 2.9%, while Australia's S&P/ASX 200 Index dropped by 0.2%. European markets experienced a decline, with the German DAX Index, the French CAC 40 Index, and the U.K.'s FTSE 100 Index sliding by 0.9%, 0.8%, and 0.8% respectively.

Following the release of the U.S inflation data, treasuries dropped significantly, hence the yield on the ten-year note, which operates inversely to its price increase by 11.3 basis points at 4.285%.