S&P 500 struggles to shake off Fed hike fears as inflation remains hot

By Yasin Ebrahim                                                                                                           

Investing.com -- The S&P 500 slipped Thursday as data pointing to ongoing underlying inflation pressure and a tight labor market stoked further fears about the Federal Reserve’s rate hike path.

The S&P 500 fell 0.74%, the Dow Jones Industrial Average fell 0.60%, or 206 points, and the Nasdaq was down 0.90%.

The PPI rose 0.7% in January, topping economists' forecasts for a 0.4% increase, taking the year-over-year figure to 6.0% in January, ahead of the 5.4% expected.

The largest monthly PPI increase since June arrived just as initial jobless claims unexpectedly fell, pointing to a tight labor market and suggesting the Fed still has more work to do to bring down demand.

“Data releases like this are why policymakers continue to reiterate their intention to raise rates higher before pausing, and then leaving rates in a restrictive territory for quite a while,” Jefferies said in note.

Following the data, Federal Reserve Bank of St. Louis President James Bullard said the “current labor market situation is unprecedented,” as demand continues to far outpace supply. Further rate hikes, however, could help “lock-in the disinflationary trend during 2023," the St. Louis fed president added. 

Growth sectors of the market including consumer discretionary and tech were the worst hit.

Tesla (NASDAQ:TSLA) gave up gains to trade more than 1% lower after the electric vehicle maker recalled 362,000 EVs, equipped with its “Full Self Driving” software, which may cause vehicles “to act unsafe around intersections,” according to the National Highway Traffic Safety Administration.

News of the recall offset earlier positive news that Tesla had sold out its Model Y EVs in the U.S. for this quarter as recent price cuts spurred demand.

On the earnings front, Roku (NASDAQ:ROKU) was a standout performer, rising more than 17% after the streaming device marker reported upbeat guidance and a narrower-than-expected loss in the fourth quarter.

"Once macroeconomic trends improve, Roku is poised to return to meaningful profitability as a platform and FAST channel leader,” Wedbush said after lifting its price target on the stock to $80 from $75.

Twilio (NYSE:TWLO) was also a big winner, up 17%, after the communications company delivered strong guidance and fourth-quarter revenue that topped Wall Street estimates.

Cisco Systems Inc (NASDAQ:CSCO) reported better-than-expected second-quarter results as improving supply and strong demand bolstered performance. Its shares rose more than 4%.

“While we expect investors to focus on the dynamic between backlog and order growth, we believe the company is well-positioned as it focuses on higher growth,” Oppenheimer said as it lifted its price target on the company to $58.00 from $50.00.

In other news, Virgin Galactic Holdings (NYSE:SPCE) was up 4% after its VMS Eve suborbital spacecraft, previously referred to as WhiteKnightTwo, completed a test flight after more than 15 months out of action.