Dow slides 150 points as traders digest strong retail sales data

What’s driving markets

Stock indexes opened lower Wednesday after data showed that U.S. retail sales jumped 3% in January, the biggest increase in almost two years. Economists polled by the Wall Street Journal forecasted a rise of 1.9%.

“While this was undoubtedly a solid report, some of the strength needs to be attributed to seasonalities,” said Ellen Zentner, chief U.S. economist, at Morgan Stanley. “Across the board, February and March have a less favorable seasonality, so we will likely see the January gains reversed out.”

Meanwhile, investors are revising their initially sanguine reaction to news that U.S. inflation remains stubbornly elevated, nudging down stock indexes on concerns the Federal Reserve may keep interest rates higher for longer.

Wall Street stocks on Tuesday delivered a choppy and ultimately mixed performance after data showed U.S. headline consumer price inflation moderating from 6.5% in December to 6.4% last month.

However, the deceleration in inflation was less than expected and this — along with further hawkish Fed rhetoric — has caused the market to believe the central bank may now take its policy interest rate up to 5.3% this year and possibly not begin cutting borrowing costs until 2024. Just a few weeks ago the market thought the fed funds rates might peak at 4.9%.

“In the face of strong data, the market is having to reassess how high the fed goes [with its key interest rate] and how long they hold it there. That is beginning to weigh on the equity market,” said Julian Brigden, president and co-founder of Macro Intelligence 2 Partners.

“You can’t have a rallying bond market and rallying equity market in this environment because you just will not get the weakness to bring down inflation,” said Brigden.

In other data Wednesday the New York Federal Reserve’s Empire State business conditions index, a gauge of manufacturing activity in the state, rose 27.1 points in February to negative 5.8, the regional Fed bank said Wednesday. However, that’s still the third month in a row of declining activity.

U.S. industrial output was flat in January, after it recorded a 1% decline in prior month.

Meanwhile, the National Association of Home Builders’ monthly confidence index rose 7 points to 42 in February, the trade group said on Wednesday. This is the second month in a row that sentiment has improved among builders.

Companies in focus

• Kraft Heinz Co.   shares dipped Wednesday, after the food and beverage company, with brands including Oscar Meyer, Kool-Aid and Velveeta, reported fourth-quarter results that topped expectations but provided a downbeat full-year outlook. 
• Airbnb jumped after reporting record fourth-quarter revenue and profit to achieve its first profitable year, and executives provided a first-quarter forecast that exceeded Wall Street estimates despite plans for price cuts.
• Roblox Corp. rallied Wednesday after the gaming company topped bookings expectations for the holiday quarter. 
• Sabre Corp.  tumbled 11% in premarket trading Wednesday, after the provider of booking software to the travel industry said travel trends continued to recover, but still reported a wider-than-expected fourth-quarter loss and gave a downbeat first-quarter revenue outlook. 
• Bausch + Lomb Corp.  stocks went up 1.4% after the company said Wednesday it has named Brent Saunders as chief executive and chair effective March 6. Saunders, who will return to the company he headed from 2010 to 2013, will replace Joseph Papa, who is stepping down.