Stock Market Today: Hot Inflation Data Sinks Stocks

 Selling resumed on Wall Street Friday, with investors spooked by another hot inflation update. A solid reading on consumer sentiment only created stiffer headwinds for the major indexes, with the broad market suffering its worst weekly loss of the year.  

Ahead of the opening bell, the Bureau of Economic Analysis said the personal consumption-expenditures (PCE) index, the Fed's preferred measure of inflation that tracks consumer spending, was up 0.6% in January – its biggest monthly increase since last summer. Year-over-year, the PCE index rose to 5.4%, marking its first increase in seven months. Core PCE, which excludes volatile food and energy prices, was also higher than what was seen in December.

"Just days after minutes from the last Federal Reserve meeting showed unanimous support among policy makers for ongoing rate increases, this morning's PCE depicts strong, ongoing inflation and strong consumer spending, strengthening expectations of substantial monetary tightening in the coming months," says José Torres, senior economist at Interactive Brokers.

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Separate data showed the University of Michigan's consumer sentiment index rose 3% from January to February to 67, confirming a previously released preliminary report. The increase came amid "improvement in the short-run economic outlook," the report said, though consumers "continued to exhibit considerable uncertainty over short-run inflation."

In single-stock news, Carvana (CVNA) plummeted 20.5% after the online auto dealer reported a sharp year-over-year decline in units sold (-23%) and revenue (-24%) in Q4. CVNA also said it will reduce operating costs by $1 billion by the second quarter, but not with layoffs. "We expect these expense reductions to be broad-based across all large SG&A expense components, but importantly, we do not expect a reduction-in-force to be part of this  plan," Carvana said in a letter to shareholders.

As for the major indexes, they finished well off their session lows but were still solidly in the red. The Dow Jones Industrial Average fell 1.0% to 32,816, the S&P 500 shed 1.1% to 3,970, and the Nasdaq Composite dropped 1.7% to 11,394. All three indexes notched their biggest weekly losses of the year.

Where to find defensive portfolio strategies

The road to get inflation down to normal levels will be long and bumpy, says Eric Sterner, chief investment officer at Apollon Wealth Management. And this could give the upper hand to the bears for the time being, Sterner adds, noting that amid this uncertain backdrop, investors "should maintain defensive portfolio strategies in the near term as the Fed will remain hawkish and earnings will continue to be pressured." 

There are ample ways investors can employ defensive strategies in their portfolios. These include targeting the best dividend stocks or gaining exposure to consumer staples stocks or utility stocks. Another tactic is to see what the smart money is doing by following their top stock picks. According to regulatory filings, billionaire investors have been busy bargain hunting during this bear market, including scooping up some popular blue chip stocks.