Wall Street drops as inflation data dulls rate-cut hopes

By Johann M Cherian and Ankika Biswas

(Reuters) - Wall Street's main indexes fell in choppy trading on Thursday after a hotter-than-expected inflation print dampened hopes of early interest-rate cuts by the U.S. Federal Reserve.

The benchmark S&P 500 briefly surpassed its record closing high of 4,796.56, hit in January 2022, before erasing opening gains.

The index has recovered nearly 17% from its October lows, gathering steam in December after the Fed hinted it was reining in inflation and rate cuts were "coming into view".

A U.S. Labor Department report showed consumer prices increased more than expected in December as rents maintained their upward trend.

A separate report showed the number of Americans filing for unemployment benefits stood at 202,000 in the week ending Jan. 6, compared with an expectation of 210,000.

"With all the key data now in hand, it's hard to see how the January FOMC meeting would result in guidance to ease at the subsequent meeting in March," said Michael Feroli, chief U.S. economist at J.P.Morgan.

"Perhaps the (Fed) committee could soften the guidance toward a neutral bias, but that would be more consistent with easing further on in the year."

Hopes of a rate cut in March were kept alive after inflation measures tracked by the Fed showed a significant improvement over 2023, with the November personal consumption expenditure index posting its first monthly decline in more than three-and-a-half years.

However, Cleveland Fed President Loretta Mester said the rocky path of inflation back to the 2% target rate reflected in the latest CPI figures meant that it was likely too soon to cut rates in March.

Meanwhile, Microsoft overtook Apple as the world's most valuable company after the iPhone maker began 2024 with its worst start in years due to concerns over falling demand. Microsoft's shares slipped 0.5%, while Apple was down 1.1%.

Other megacaps like Tesla, Meta Platforms and Nvidia also lost between 0.9% and 3.3%.

At 11:28 a.m. ET, the Dow Jones Industrial Average was down 232.34 points, or 0.62%, at 37,463.39, the S&P 500 was down 36.35 points, or 0.76%, at 4,747.10, and the Nasdaq Composite was down 136.40 points, or 0.91%, at 14,833.25.

Ten of the S&P 500's 11 sectors were in decline, with only the energy sector edging 0.4% higher, rebounding from three straight days of losses.

Crypto stocks like Coinbase, Bitfarms and Riot Platforms also reversed early gains, falling between 6.2% and 9.9%. The U.S. securities regulator approved the first U.S.-listed exchange-traded funds (ETF) to track spot bitcoin late on Wednesday.

Citigroup declined 2.6% after a filing showed the lender booked about $3.8 billion in combined charges and reserves that will erode its fourth-quarter earnings, to be reported on Friday.

Other banks like JPMorgan Chase, Bank of America and Wells Fargo lost between 0.8% and 2.1% ahead of reporting earnings on Friday.

Netflix rose 1.9% on a report that its ad-supported tier has reached more than 23 million active users per month globally.

Declining issues outnumbered advancers for a 3.11-to-1 ratio on the NYSE and a 3.27-to-1 ratio on the Nasdaq.

The S&P index recorded 32 new 52-week highs and one new low, while the Nasdaq recorded 39 new highs and 88 new lows.

(Reporting by Johann M Cherian and Ankika Biswas in Bengaluru; Additional reporting by Amruta Khandekar; Editing by Pooja Desai)