U.S. Stocks Pull Back Sharply As Inflation Data Adds To Interest Rate Worries

(RTTNews) - With hotter-than-expected inflation data leading to renewed concerns about the outlook for interest rates, stocks moved sharply lower during trading on Thursday. The major averages showed a significant pullback after turning positive over the course of Wednesday's session.

The major averages regained ground after an initial sell-off but once again came under pressure in the final hour of trading. The Dow slumped 431.20 points or 1.3 percent to 33,696.85, the Nasdaq plunged 214.76 points or 1.8 percent to 11,855.83 and the S&P 500 tumbled 57.19 points or 1.4 percent at 4,090.41.

The steep drop on Wall Street came following the release of a Labor Department report showing a bigger than expected increase in producer prices.

The Labor Department said its producer price index for final demand climbed by 0.7 percent in January after edging down by a revised 0.2 percent in December.

Economists had expected producer prices to increase by 0.4 percent compared to the 0.5 percent drop originally reported for the previous month.

While the report also showed the annual rate of producer price growth slowed to 6.0 percent in January from 6.5 percent in December, the year-over-year growth was expected to slow to 5.4 percent.

Following the consumer price inflation and retail sales data released earlier this week, the report added to worries about the outlook for interest rates.

Traders have recently expressed concerns the Federal Reserve will raise rates higher than currently anticipated in an effort to combat inflation.

"The larger than expected increase to producer prices is unwelcome news to the Fed and reinforce the view that further policy tightening is needed to tame inflation," said Matthew Martin, U.S. Economist at Oxford Economics.

A separate Labor Department report showed first-time claims for U.S. unemployment benefits unexpectedly edged slightly lower in the week ended February 11th.

The report said initial jobless claims slipped to 194,000, a decrease of 1,000 from the previous week's revised level of 195,000.

Economists had expected jobless claims to inch up to 200,000 from the 196,000 originally reported for the previous week.

Michael Pearce, Lead US Economist at Oxford Economics, said the current level of jobless claims suggests labor market conditions remain "exceptionally tight."

"That is consistent with most other indicators which suggest that the labor market is still carrying plenty of momentum, leaving the Fed on track to raise rates at its March meeting, and probably at the May meeting too," Pearce added.

Sector News

Software stocks moved sharply lower over the course of the session, dragging the Dow Jones U.S. Software Index down by 2.7 percent.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 2.5 percent slump by the Philadelphia Semiconductor Index.

Airline stocks also showed a significant move to the downside on the day, resulting in a 2.4 percent nosedive by the NYSE Arca Airline Index.

Housing stocks also saw considerable weakness following disappointing housing starts data, moving notably lower along with retail, oil and telecom stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan's Nikkei 225 Index climbed by 0.7 percent, while Hong Kong's Hang Seng Index advanced by 0.8 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index jumped by 0.9 percent, the German DAX and the U.K.'s FTSE 100 Index both edged up by 0.2 percent.

In the bond market, treasuries extended a recent downward trend following the inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose 3.4 basis points to 3.843 percent.

Looking Ahead

A report on U.S. import and export prices may attract attention on Friday along with a reading on leading U.S. economic indicators.