U.S. Stocks Move Mostly Lower As Producer Price Inflation Exceeds Estimates

(RTTNews) - Stocks showed a lack of direction in early trading on Thursday but moved mostly lower over the course of the session. The major averages all moved to the downside on the day, although selling pressure remained somewhat subdued.

The major averages climbed well off their worst levels going into the close but remained in negative territory. The Dow slid 137.66 points or 0.4 percent to 39,905.66, the Nasdaq fell 49.24 points or 0.3 percent to 16,128.53 and the S&P 500 dipped 14.83 points or 0.3 percent to 5,150.48.

The weakness on Wall Street reflected renewed concerns about the Federal Reserve further postponing its first interest rate cut following the release of hotter-than-expected inflation data.

Before the start of trading, the Labor Department released a report showing producer prices increased by much more than expected in the month of February;

The Labor Department said its producer price index for final demand climbed by 0.6 percent in February after rising by 0.3 percent in January. Economists had expected producer prices to rise by another 0.3 percent.

The report also said the annual rate of producer price growth accelerated to 1.6 percent in February from a revised 1.0 percent in January.

Economists had expected the year-over-year price growth to rise to 1.1 percent from the 0.9 percent originally reported for the previous month.

"With less than a week to go until the next meeting of US central bankers, markets are having to face up to the prospect that the path to a pivot will be a long and winding one," says Danni Hewson, head of financial analysis at AJ Bell.

"After markets broadly managed to shrug off last week's hotter than expected inflation data, today's producer price numbers have settled like a bucket of cold porridge," she added. "Investors can still subscribe to the expectation that the 'Goldilocks' scenario is in play, but it's going into extra time and that's requiring a bit of a rethink."

Meanwhile, the Commerce Department released a report showing retail sales rebounded in the month of February, although the increase fell short of economist estimates.

The Commerce Department said retail sales climbed by 0.6 percent in February after slumping by a revised 1.1 percent in January.

Economists had expected retail sales to increase by 0.8 percent compared to the 0.8 percent decrease originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales rose by 0.3 percent in February after falling by 0.8 percent in January. Ex-auto sales were expected to rise by 0.5 percent.

However, FHN Financial chief economist said, "When the Fed is contemplating a series of rate cuts and is confronted by suddenly slower economic growth and suddenly brisker inflation, they will respond to the new news on the inflation side every time."

"After all, this is not the first time in the past couple of years consumers have paused spending for a couple of months to catch their breath, and getting inflation to 2% has been an overriding goal since the Fed abetted Congress in driving inflation to 7% in 2021," he added.

Sector News

Housing stocks saw substantial weakness on the day, resulting in a 3.0 percent nosedive by the Philadelphia Housing Sector Index.

Interest rate-sensitive telecom stocks also saw considerable weakness, dragging the NYSE Arca North American Telecom Index down by 2.3 percent.

Significant weakness was also visible among biotechnology stocks, as reflected by the 2.0 percent slump by the NYSE Arca Biotechnology Index.

Steel, banking and semiconductor stocks also saw notable weakness, while software and oil service stocks bucked the downtrend.

Other Markets

In overseas trading, stocks markets across the Asia-Pacific region turned in yet another mixed performance on Thursday. While Japan's Nikkei 225 Index rose by 0.3 percent, China's Shanghai Composite Index dipped by 0.2 percent and Hong Kong's Hang Seng Index slid by 0.7 percent.

The major European markets also finished the day mixed. While the French CAC 40 Index climbed by 0.3 percent, the German DAX Index edged down by 0.1 percent and the U.K.'s FTSE 100 Index fell by 0.4 percent.

In the bond market, treasuries have moved sharply lower in reaction to the producer price inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 10.6 basis points to 4.298 percent.

Looking Ahead

Trading on Friday may be impacted by reaction to another batch of U.S. economic data, including reports on import and exports prices, industrial production and consumer sentiment.