Wall Street ends sharply lower as hot inflation sparks sell-off

Wall Street's main indexes ended sharply lower on Tuesday (February 13) after a higher-than-expected consumer inflation reading pushed back market expectations of imminent interest rate cuts, driving U.S. Treasury yields higher.

A Labor Department report showed U.S. consumer prices increased above forecasts in January amid a surge in the cost of shelter.

Markets have rallied this year on bets that the Fed would start trimming rates in May. The S&P 500 closed above 5,000 for the first time on Friday. The Dow is also trading near a record-high level, and on Monday the Nasdaq briefly surpassed its record closing high from November 2021.

After the release of the inflation data, bets by traders for a rate reduction in May of at least 25 basis points dropped to 36.1 per cent, from about 58 per cent before the data, while expectations for June stood at 74.3 per cent, the CME FedWatch tool showed.

Real estate consumer discretionary utilities ked losses among the 11 major S&P 500 sector indexes, with real estate falling to an over two-month low.

The small-cap Russell 2000 index also fell.

The latest data comes on the heels of a modest revision to inflation in the last quarter of 2023 that left investors briefly relieved on the trajectory of inflation.