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Dow slides more than 500 points, bond yields soar on inflation hit

The S&P 500 and Nasdaq composite index also fell sharply, fueling speculation the Federal Reserve may move more aggressively on rate hikes

Trader Peter Tuchman works the floor of the New York Stock Exchange on Feb. 9. (Courtney Crow/AP)

U.S. stocks took a tumble and bond yields ballooned Thursday after a key economic report showed that inflation has accelerated, fueling speculation the central bank could move more aggressively than expected to raise interest rates.

The tech-heavy Nasdaq composite index skidded 2.1 percent, or nearly 305 points, to close at 14,185.64. Stocks, especially those in the tech sector, tend to benefit from lower rates as some investors look past higher upfront costs to the likelihood of hefty profits down the line. The broader S&P 500 shed 1.8 percent, or 83 points, to end the regular session at 4,504.08. The Dow Jones industrial average dropped more than 526 points, or nearly 1.5 percent, to settle at 35,241.59.

All three indexes are down 3 percent or more year-to-date, according to MarketWatch.

Markets have been apoplectic in recent weeks, though sentiments had been improving more recently as investors priced in the likelihood of several rate hikes and processed a string of economic data that suggested omicron cast less of a shadow over the economy than many had feared.

But households and businesses have been getting hammered by soaring inflation, which has fired up the costs of goods and services, and cast a spotlight on the Federal Reserve, which has made reining it in its top priority.

The Labor Department reported Thursday that the consumer price index surged at a 7.5 percent annual pace, the highest level since February 1982.

“Inflation expectations were already high, so the hot read is likely not a welcomed one for the market,” Mike Loewengart, managing director of investment strategy at E-Trade, said in emailed comments to The Washington Post. “Investors have reacted in textbook fashion recently, selling big tech as Fed tightening looms larger, so we could see volatility today.”

Bond yields boomed in response to the inflation report, with the yield on the 10-year U.S. Treasury note spiking above 2 percent.

In the shorter term, data released Thursday by the Bureau of Labor Statistics also showed prices were 0.6 percent higher in January than they were in December. That’s the same change recorded from November to December, which officials had revised upward slightly.

The rising cost of food, electricity and shelter helped drive inflation higher last month. Household furnishings, clothing and medical care becoming costlier, while used-car costs continued to climb, albeit at a slower pace than in prior months.

While the Fed had pledged to take action against inflation, uncertainty around its course has riled markets in recent weeks. But the reality is that the current inflationary environment is “unconventional,” and fueled in large part by supply chain disruptions that cannot be fixed with tighter monetary policy, Nancy Davis, founder of Quadratic Capital Management, said Thursday in comments emailed to The Post.

“Many of the factors driving inflation higher seem to be caused by supply chain constraints and fiscal stimulus and could naturally fade away on their own,” Davis noted. “However, those factors are taking a lot longer than expected to slow down. At the same time, commodity prices are increasing and further fueling inflation.”

Higher prices seep into “just about everything” households and businesses buy, according to Gabe Krajicek, chief executive of financial tech company Kasasa. Total household debt grew by $1 trillion last year, marking the biggest spike in consumer debt loads since 2007, according to a report released earlier this week by the New York Fed.

“Rising prices and inflation are causing consumers to dip further into their lines of credit,” Krajicek noted in emailed comments to The Post. “We are also on the cusp of rising interest rates, which will be just another form of inflation as the debt accumulated to this point will need to be paid back at progressively higher interest rates.”

Corporate earnings have been the major force behind market machinations in recent sessions, with performances from big names sparking steep sell-offs and big rallies. A disappointing earnings report from Meta Platforms last week sparked a sell-off that erased roughly $230 billion in market value, a record for a U.S. company. A day later, Amazon’s value swelled by $191 billion, also a record, after it reported blockbuster fourth-quarter revenue, lifting tech and other sectors alongside it. (Amazon founder Jeff Bezos owns The Washington Post.)

“While the situation has not improved in recent weeks, there has been a clear upturn in sentiment,” Craig Erlam, senior market analyst with OANDA, said Thursday in comments emailed to The Post. “Earnings season came at just the right time and while there have been bumps in the road, investors will reflect on it positively and it’s certainly helped to lift the mood.”

Investors were delivered a smattering of good performances however that suggested brighter times for the economy. The Walt Disney Co. rose 3.8 percent, lifted by a blowout earnings performance after markets closed Wednesday, including record income from its theme parks and resorts business and healthy growth among its Disney Plus subscribers.

Coca-Cola’s shares rose about 0.6 percent after it reported better-than-expected earnings, driven by the return of concession sales at major events, with sales of drinks away from home cresting pre-pandemic levels. Twitter shares slipped nearly 2 percent following its earnings miss, as the social media company said it had mostly sidestepped privacy changes that have hurt its competitors, such as Facebook and Meta Platforms.

Separately, weekly jobless claims continued their downward march. They settled at 223,000, a 16,000 drop from the previous week’s upwardly revised figure, according to Labor Department data released Thursday.