Stocks ended broadly lower Wednesday after a reading on consumer prices revealed inflation unexpectedly picked up at the start of the year.
The lack of progress on disinflation now has market participants expecting just one cut to borrowing costs in 2025. Lower rates equal higher valuations for stocks, which is one reason equity investors are eager for the Federal Reserve's Federal Open Market Committee (FOMC) to cut the short-term federal funds rate.
"This morning's monumental CPI beat is fueling cross-asset volatility as investors unload stocks and bonds alike," writes José Torres, senior economist at Interactive Brokers. "The report was just awful and utterly unexpected, with both the monthly and annualized figures reaching their highest levels in 17 and 8 months, respectively."
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The monthly core reading jumped to its highest level in 21 months, the economist adds, illustrating the "significant surge in cost pressures to start the year."
For the record, headline January CPI increased 0.5% month over month, according to the Bureau of Labor Statistics, or the biggest gain since August 2023. Economists were looking for inflation to rise 0.4% last month. On an annual basis, headline CPI rose 3%, up from 2.9% in December, and higher than the 2.9% median forecast.
More importantly, core CPI, which excludes volatile food and energy costs and is considered a better indicator of future prices, increased 0.4%, an acceleration from 0.2% last month. Economists were looking for monthly core CPI to increase 0.3%. On an annual basis, core CPI also came in hot, at 3.3% vs the median estimate of 3.1%.
Torres notes that reaction to the CPI report coincided with Fed Chair Jerome Powell delivering his semi-annual report to members of the House of Representatives on Capitol Hill. "The reconsideration of when the committee can continue its walk down the monetary policy stairs is leading to traders trimming equities as heavier borrowing costs weigh on risk premiums," he writes.
Ten of the broader market's 11 sectors ended in the red, with only communications services closing with a gain. The energy sector, real estate, materials and industrials were the day's biggest losers.
As for the major benchmarks, at session's end, the blue chip Dow Jones Industrial Average was off 0.5% at 44,368, while the broader S&P 500 shed 0.3% at 6,051. The tech-heavy Nasdaq Composite was essentially unchanged at 19,649.
Meta stock won't stop
Meta Platforms (META,+0.8%) bucked a down market once again Wednesday, extending its win streak to 18 days. That's the longest stretch of gains for any stock in the tech-heavy Nasdaq-100 since 1990, according to Bloomberg data.
Meta, one of the market's most popular AI plays and a Magnificent 7 stock, helped protect the communication's sector from further damage in a down session. But then that's just what META stock does these days – or ever since it unveiled AI plans that differ significantly from major competitors such as Google parent Alphabet (GOOGL) and Microsoft (MSFT).
META intends to invest as much as $65 billion on AI projects this year. Although that's less than some rivals, it far exceeded what Wall Street had been expecting. Indeed, major AI players plan to collectively make hundreds of billions of dollars in capital expenditures to build out data centers.
The emergence of cheap AI chatbot DeepSeek has some investors rethinking those spending plans. But not so much Meta's. That's because the market sees DeepSeek's open-source model as a validation of Meta's own open-source model called Llama.
META stock is up almost 18% on a price basis since its streak began on January 16, adding $288 billion in market cap in the process. For context, that's more than the entire market value of Buy-rated Dow Jones stock Chevron (CVX). Meta's market value of $1.84 trillion now makes it the sixth largest company in the S&P 500.
Happily for current and would-be investors, Wall Street thinks META stock has plenty more room to run. Of the 63 analysts issuing opinions on the name polled by S&P Global Market Intelligence, 42 rate it at Strong Buy, 12 say Buy, seven have it a Hold and two call it a Sell.
That works out to a consensus recommendation of Buy, with very high conviction.
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