The markets are starting off Wednesday in the red as the consumer price index (CPI) rose more than expected in March. The CPI increased by 0.4% compared to the 0.3% forecasted by economists. This unexpected rise in inflation dashed hopes of a rate cut at the Fed’s June policy meeting, causing the market probability of a rate cut to drop to around 20%.
Index ETFs like SPY and DIA also saw declines, with SPY dropping over 1% and DIA sinking 1.25%. Treasury yields rose, especially on the 10-year benchmark, leading to a decrease in bond prices. This has caused bond ETFs like TLT to experience fluctuations as investors speculate on potential rate cuts by the Fed.
The price of TLT is currently around $91, near its lows for the year. The inflation report also impacted real estate and technology equity prices, with VNQ dropping nearly 3.5% and tech-heavy ETFs like QQQ sliding almost 1%. Higher interest rates make mortgages and loans more expensive, putting pressure on real estate, while tech stocks are affected as higher rates can impact future profits.
Overall, the market is reacting to the unexpected rise in inflation, with various sectors experiencing declines in response.