Markets

S&P 500, Nasdaq fall for a third day, reversing earlier gains, after report shows highest inflation since '81

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Stocks fell on Tuesday, after an early morning bounce gave way to selling as investors weighed the latest U.S. inflation data. The report showed another sharp increase in prices for last month.

The S&P 500 declined 0.34% to 4,397.45, and the Nasdaq Composite fell 0.30% to 13,371.57, as both averages posted losses for a third trading day. The Dow Jones Industrial Average closed 87.72 points lower, or 0.26%, to 34,220.36.

The major averages were sharply higher to start the session, with the Dow rallying as much as 361.89 points, or about 1.1%. The S&P 500 and Nasdaq were up as much as 1.3% and 2%, respectively, at their highs of the day. Wall Street was trying to recover from steep losses suffered in the previous session.

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Consumer prices in March surged 8.5% from a year ago, slightly higher than expected and at their highest levels since 1981, according to data from the Labor Department on Tuesday. Meanwhile, core CPI — which excludes food and energy prices — rose less than expected; it climbed 0.3% in March, while economists polled by Dow Jones expected a gain of 0.5%. Core prices on an annual basis were up 6.5%.

The high inflation numbers raised expectations of tighter monetary policy from the Federal Reserve, which investors fear could slow the economy. The Fed raised rates at its March meeting, and it's expected to hike more throughout the year.

"I think the Fed has to continue at least 50-basis-point hikes for a number of meetings," Wharton School finance professor Jeremy Siegel told CNBC's "Halftime Report" on Tuesday. One basis point equals 0.01 percentage points. "The Fed really has to get above 3%, 3.5% if it wants to slow the inflation, which I still think is moving through the system."

Siegel said he sees elevated inflation continuing for "many months to come."

The 10-year Treasury yield retreated from a three-year high following the report as traders hoped the core reading could mean inflation is showing signs of peaking. The benchmark note fell more than 6 basis points to about 2.72% following the CPI report.

Tech stocks gave up earlier gains after popping to start the day. Microsoft and Nvidia all dropped lower, falling 1.1% and 1.9%, respectively.

Tuesday's moves took place amid a surge in oil prices, as China eased up on Covid lockdowns that would have hurt demand. The international benchmark Brent crude jumped 6.26% to settle at $104.64 per barrel. Meanwhile, West Texas Intermediate crude futures gained 6.69% to settle at $100.60 per barrel.

Energy stocks tracked oil prices upward. Occidental Petroleum jumped 2.1%. Devon Energy gained 3.7%. Marathon Oil popped about 4.2%, and Chevron spiked nearly 2.1%.

Investors are also awaiting the start of earnings season set to kick off Wednesday with JPMorgan and Delta Air Lines, followed by several big banks on Thursday.