U.S. Stocks Pulling Back Sharply Following Bullard Comments

Stocks have gone on a rollercoaster ride over the course of the trading session on Thursday, with the major averages rebounding strongly from an initial sell-off only to pullback sharply once again in afternoon trading.

In recent trading, the Dow and the S&P 500 have fallen to new lows for the session. The Dow is down 460.11 points or 1.3 percent at 35,307.95, the Nasdaq is down 241.82 points or 1.7 percent at 14,248.55 and the S&P 500 is down 70.41 points or 1.5 percent at 4,516.77.

The afternoon sell-off on Wall Street comes following comments from St. Louis Federal Reserve President James Bullard regarding the outlook for interest rates.

In an interview with Bloomberg News, Bullard indicated he supports raising interest rates by 50 basis points next month as part of plan to raise rates by a full percentage point by the start of July.

“I was already more hawkish but I have pulled up dramatically what I think the committee should do,” said Bullard, who is a voting member on the Federal Open Market Committee this year.

Bullard’s comments came after the Labor Department released a report showing the annual rate of growth in consumer prices accelerated more than expected in the month of January, triggering the initial sell-off on Wall Street.

The report showed consumer prices in January were up by 7.5 percent compared to the same month a year ago, reflecting the fastest annual growth since February of 1982. Economists had expected the annual rate of growth to reach 7.3 percent.

The faster year-over-year growth came as the Labor Department said its consumer price index climbed by 0.6 percent in January, matching the upwardly revised advance seen in December.

Economists had expected consumer prices to rise by 0.5 percent, matching the increase originally reported for the previous month.

The report showed core consumer prices, which exclude food and energy prices, also advanced by 0.6 percent in January, matching the increase seen in December. Economists had also expected core prices to rise by 0.5 percent.

The annual rate of growth in core prices accelerated to 6.0 percent in January from 5.5 percent in December, showing the biggest jump since August of 1982.

“These strong inflation data raise the prospect of the Fed starting its tightening cycle with a 50bps rate hike at its March policy meeting, followed by consecutive rate hikes at the subsequent meetings,” said Kathy Bostjancic, Chief US Financial Economist at Oxford Economics.

She added, “If the Fed decides that 50bps is too strong to kick off the tightening cycle, 50bps could be in the cards for the following meetings.”

CME Group’s FedWatch tool currently indicates a 96.7 percent change the Fed will raise rates by 50 basis points at its next meeting in mid-March.

Sector News

Telecom stocks have seen substantial weakness throughout the session, resulting in a 2.5 percent nosedive by the NYSE Arca North American Telecom Index.

Significant weakness is also visible among interest rate-sensitive utilities and housing stocks, with the Dow Jones Utility Average and the Philadelphia Housing Sector Index both tumbling by 2.2 percent.

Software stocks have also come under pressure over the course of the session, dragging the Dow Jones U.S. Software Index down by 2.1 percent.

Semiconductor, retail and commercial real estate stocks are also seeing considerable weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index rose by 0.4 percent, while China’s Shanghai Composite Index edged up by 0.2 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the French CAC 40 Index fell by 0.4 percent, the German DAX Index inched up by 0.1 percent and the U.K.’s FTSE 100 Index rose by 0.4 percent.

In the bond market, treasuries have moved sharply lower in reaction to the inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 8.8 basis points at 2.017 percent.

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