The Dow Jones Industrial Average edged lower Tuesday after data showed inflation cooled, but remained hot enough to keep the Federal Reserve on track for further interest-rate increases.
The Dow lost 156.66 points, or 0.5%, to 34089.27. The broad-based S&P 500 was roughly flat, falling 1.16 points, or less than 0.1%, to 4136.13, erasing earlier gains.
The tech-heavy Nasdaq Composite was the outlier. It rose 68.36 points, or 0.6%, to 11960.15.
The U.S. consumer-price index showed annual inflation cooled for the seventh straight month to 6.4% last month, according to Labor Department data released Tuesday. Still, the reading came in slightly above what economists surveyed by The Wall Street Journal had expected. Inflation also increased in January from a month earlier, in large part due to rising costs for shelter.
The data make it likely the Fed will not only raise interest rates in March, as was widely anticipated, but also point to the need for further rate increases in the following months. Hopes that the Fed would be able to pause after its March meeting had helped stocks rally to start the year.
“The strength of core inflation suggests that the Fed has a lot more work to do to bring inflation back to 2%,” said Maria Vassalou, co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management, in emailed comments. Ms. Vassalou added that she would be watching Wednesday’s retail sales report to see if the economy remains hot enough that the Fed may have to bring rates even higher than they currently anticipate.
The yield on the two-year U.S. Treasury note, which is sensitive to expectations for monetary policy, climbed to 4.620% from Monday’s 4.534%, landing at its highest level since November. Yields rise as prices fall.
Corporate earnings for the fourth quarter drove swings across the stock market.
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Some economists say data can be volatile from month to month, and that it’s normal to see some moderation in the pace of inflation cooling.
“Everyone’s expecting ups and downs in the disinflationary trend,” said Samy Chaar, chief economist at Lombard Odier. “We know that we’re not going to see massive disinflation month after month.”
Corporate earnings for the fourth quarter drove swings across the stock market.
reported a stronger-than-expected 7% rise in quarterly revenue, but said it expected sales growth to slow over the rest of the year. The beverage maker’s shares fell $1.01, or 1.7%, to $59.59.
stock rose $6.90, or 4%, to $181.27 after the hotel operator’s fourth-quarter results topped Wall Street’s expectations. Demand for leisure travel in the U.S. and Canada held strong in the fourth quarter, with travelers paying up for rooms despite being charged higher rates, the company said.
In commodity markets, oil prices fell. U.S. crude oil slipped 1.3%, or $1.08, to $79.06 a barrel.
Overseas stocks were mostly modestly higher. The Stoxx Europe 600 rose 0.1%, paring earlier gains, and the U.K.’s FTSE 100 added 0.1% to close at a record high.
In Asia, Japan’s Nikkei 225 rose 0.6%, and the Shanghai Composite gained 0.3% to close at its highest level since July. Hong Kong’s Hang Seng Index was an outlier, falling 0.2%.
Write to Chelsey Dulaney at chelsey.dulaney@wsj.com and Akane Otani at akane.otani@wsj.com
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