Equity markets closed lower as the Producer Price Index rose 0.6% month-over-month in January, exceeding expectations and reigniting concerns over persistent inflation pressures. The S&P 500 fell 1.2%, while the Nasdaq Composite lost 1.5%.
- PPI rose 0.6% month-over-month in January, above the 0.4% forecast
- Core PPI increased 0.5%, exceeding the expected 0.4%
- S&P 500 declined 1.2%, Nasdaq Composite lost 1.5%
- 10-year Treasury yield climbed to 4.48%
- Market now assigns 68% probability to a rate hold in March
- Technology and industrials sectors led declines, while utilities and real estate posted small gains
U.S. stock indices ended the session in negative territory Friday, pressured by a sharper-than-expected increase in wholesale inflation. The Producer Price Index (PPI) rose 0.6% in January, marking the largest monthly gain since June 2023 and surpassing the consensus forecast of 0.4%. Core PPI, which excludes food and energy, advanced 0.5%, also outpacing the expected 0.4% increase. The data intensified speculation that the Federal Reserve may maintain higher interest rates for longer than previously anticipated. Financial markets now price in a 68% probability of a rate hold at the upcoming March FOMC meeting, up from 52% before the release. Yields on 10-year Treasury notes climbed to 4.48%, the highest level since late 2023, reflecting growing bond market anxiety. Sectors sensitive to interest rate changes were hardest hit. Technology stocks led losses, with the Nasdaq Composite shedding 1.5%, while the S&P 500 dropped 1.2%. Industrials and consumer discretionary sectors also declined, falling 1.4% and 1.3%, respectively. Conversely, utilities and real estate, traditionally considered defensive, saw modest gains of 0.3% and 0.5%, respectively. The rally in Treasury yields and broad market sell-off underscored a shift in investor sentiment. With inflation pressures persisting at the wholesale level, corporate margins and consumer demand remain under scrutiny. Analysts now project a higher likelihood of a second rate hike in 2026, depending on the trajectory of consumer price data in the coming months.