Stock Market Today: Markets Turn Lower on Nasty Inflation Surprise

(Image credit: Getty Images)

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."

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

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.

TOPICS

Dan Burrows is Kiplinger's senior investing writer, having joined the publication full time in 2016.

A long-time financial journalist, Dan is a veteran of MarketWatch, CBS MoneyWatch, SmartMoney, InvestorPlace, DailyFinance and other tier 1 national publications. He has written for The Wall Street Journal, Bloomberg and Consumer Reports and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among many other outlets. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about markets and macroeconomics.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade individual stocks or securities. He is eternally long the U.S equity market, primarily through tax-advantaged accounts.