Stock Market Today: Hot Inflation Data Sends Stocks Lower

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Stocks closed sharply lower Thursday after the latest inflation data came in hotter than expected and two Federal Reserve officials advocated for more aggressive rate hikes. Also in focus was a fresh round of corporate earnings reports. While several companies reported well-received results, one Warren Buffett stock tumbled after a fourth-quarter miss.

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Starting with that inflation data. The Labor Department said its producer price index (PPI), which measures how much suppliers are charging businesses for goods, rose 0.7% month-over-month in January. This was the biggest increase since June, and higher than the 0.4% rise economists were expecting. On an annual basis, PPI was up 6%. Core PPI, which excludes volatile energy and food prices, was 0.6% higher from December to January and up 4.5% year-over-year.

This morning's PPI data follows Tuesday's concerning consumer price index (CPI) reading, which heightened concerns the Federal Reserve could raise interest rates more than expected and keep them higher for longer.

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"Both inflation readings this week point to the stickiness of inflation and that the fight isn't over, especially when considering today's PPI reading was the highest month-over-month increase since early summer," says Mike Loewengart, head of model portfolio construction at Morgan Stanley. "And if you add in that jobless claims declined suggesting the labor market remains tight, it shouldn't be a surprise to see the market take a breather as hopes of a dovish Fed in the coming months fade. Bottom line is investors should recognize inflation may not return to normal levels as quick as many hope, and with that may come more volatility."

As for those earnings reports, Roku (ROKU) stock jumped 11.2% after the streaming company reported a slimmer-than-expected fourth-quarter loss of $1.70 per share on higher-than-anticipated revenue of $867 million. The company also said active subscribers and streaming hours were up compared to Q3.

Cisco Systems (CSCO) was another post-earnings winner, adding 5.2% to make it the best Dow Jones stock today. The network equipment maker reported fiscal second-quarter earnings of 85 cents per share on $13.6 billion in revenue, more than analysts were expecting. CSCO also raised its full-year outlook, with CEO Chuck Robbins saying "our fiscal 2023 is shaping up to be a great year."

While ROKU and CSCO finished on the positive side of the ledger, the same can't be said for many other names on Wall Street Thursday – including Warren Buffett stock Paramount Global (PARA). PARA shares slid 4.2% after the media giant reported lower-than-expected fourth-quarter earnings and revenue.

PARA is a member of the Berkshire Hathaway equity portfolio. Regulatory filings released earlier this week revealed which stocks Warren Buffett is buying and selling, and PARA was among the holdings Berkshire added to in Q4. On the flip side, Taiwan Semiconductor Manufacturing (TSM, -2.1%) continued to decline following the bombshell revelation that Buffett drastically reduced his stake in the chipmaker after initiating the position in Q3.

As for the major indexes, the Nasdaq Composite finished down 1.8% at 11,855, the S&P 500 was 1.4% lower at 4,090, and the Dow Jones Industrial Average was off 1.3% at 33,696. The benchmarks closed at their session lows after St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester backed more aggressive action from the central bank to bring down inflation.

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Following two hot inflation readings, all eyes are on next Friday's release of the personal consumption and expenditures index (PCE), the Fed's preferred measure of inflation that tracks consumer spending.

Pooja Sriram, U.S. economist at Barclays Investment Bank, expects headline PCE to be up 0.52% on a monthly basis – much higher than the 0.05% month-over-month increase seen in December. "We expect some of this acceleration in price pressures to come from the positive contributions of food and energy, similar to what was seen in the January CPI report," the economist says. Another elevated inflation reading could spark more volatility in the markets amid worries over additional hikes.

Investors seeking out stock picks or strategies to minimize the impact of inflation and higher interest rates on their portfolio would be hard-pressed to find better options than the best inflation-proof stocks or the best stocks for rising interest rates. There's also the top recession-proof stocks or, for those seeking a more diversified approach, the best bear market ETFs, all of which are solid defensive investments.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.