Stock market today: US stocks rebound from inflation-fueled sell-off

US stocks were higher on Wednesday, bouncing back after hotter-than-expected inflation data drove a sell-off and dashed hopes for interest rate cuts in early spring.

The Dow Jones Industrial Average (^DJI) rose 0.4%, after the index suffered a 500-point drop and the blue-chip benchmark's worst day since March 2022 on Tuesday. The S&P 500 (^GSPC) added almost 1% while the Nasdaq Composite (^IXIC) climbed almost 1.3% — also on the heels of sharp declines.

The move came as Chicago Fed President Austan Goolsbee cautioned market participants shouldn't get "too flipped out" over one inflation report and added that the underlying trend still shows inflation is "approaching" the Fed's 2% target.

A familiar narrative played out on Tuesday. A surprise inflation print spooked investors' stance that interest rate cuts are around the corner and sent bond yields soaring.

As the 10-year Treasury yield (^TNX) spiked more than 15 basis points to its highest level since November, stock sold off.

However, as stocks rallied on Wednesday, the fixed income market was noticeably quieter. The 10-year Treasury yield was down about 5 basis points on Wednesday.

Tesla (TSLA) stock rose about 1.5% in afternoon trade on Wednesday. But investors aren't overly optimistic about the upside for shares over the next six to 12 months, according to new research from Morgan Stanley.

Yahoo Finance's Pras Subramanian reports:

An informal poll of Tesla (TSLA) institutional investors done by Morgan Stanley found many are bearish and expect the stock to underperform over the next six months.

“Just back from easily the most bearish of our Tesla bull/bear lunches … but for admittedly understandable reasons,” Morgan Stanley analyst Adam Jonas wrote in a note on Wednesday. “Some doubted if sales grow at all this year. Most see consensus falling and AI ‘off-the-table’ for now."

Jonas said his “read of the room” from the lunch, a semi-regular gathering Morgan Stanley holds for its institutional clients, revealed that “everyone felt the stock would underperform over 6 months,” and almost everyone felt the stock would underperform over the next year. Tesla stock is down a whopping 25% year to date.

Jonas cited several reasons for the overall bearishness among clients, one of the biggest being AI and Tesla's exclusion from tech’s AI-related run-up.

“[Tesla CEO] Elon Musk is seen as ‘sidelining’ Tesla from the AI theme for 2024, allowing investors to focus on the deteriorating EV demand narrative,” Jonas wrote.

This is likely fallout from a string of tweets from Elon Musk in mid-January in which he wrote that he would be “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control.” Many saw this as Musk threatening to siphon off AI efforts into separate companies, thus depriving Tesla of gains made in its AI efforts, and also Musk demanding more compensation in the form of stock grants from the Tesla board.

Investors have all but ruled out a March interest rate cut after the January Consumer Price Index (CPI) came in hotter than expected.

But Renaissance Macro Research head of economics Neil Dutta noted that the inflation print likely did more to shake the market outlook than the Fed's actual stance. This was seen through significant shifts in bets on when the Fed will cut interest rates.

Markets are now pricing in a 37% chance the Fed cuts rates by the May meeting, down from the 100% chance seen a month ago, per the CME FedWatch Tool. The total number of cuts investors see this year has moved too. Data compiled by Bloomberg shows that investors are now pricing in roughly four rate cuts this year, down from a peak of six cuts seen amid the soft-landing euphoria that followed the December Fed meeting.

"The underlying story has not changed, and I would be reluctant to punt a May cut," Dutta wrote in a note to clients on Wednesday. "We are still talking about when the Fed cuts and how much the economy is growing. There might be room for some follow through on inflation, but beyond a month or two, it is hard to see why soft-landing market dynamics don’t reassert themselves."

Salesforce's (CRM) stock was up more than 2% on Wednesday after launching a new AI-focused product on Slack.

Yahoo Finance's Dan Howley reports:

Slack, the popular workplace messaging app, has officially launched its Slack AI. An intelligent assistant, the bot is designed to make it easier to catch up on the ever-expanding list of work threads and channels that haunt your dreams.

Salesforce-owned Slack has been testing Slack AI with a handful of early adopters, but now it’s opening the service up to all of its customers, albeit as a paid add-on. Slack, however, didn’t disclose the price of the offering.

Slack AI is broken down into three main features: summarization for threads, summarization for channels, and a search option. To access threads and channel summarization, you go into the appropriate thread or channel and click or tap the star symbol in the top right corner of your Slack Window.

Slack AI will then run through the content of your thread or channel and summarize it into a bite-sized list complete with key topics and action items. The idea is to eliminate the hassle of having to scroll through long conversations that you might have missed while you were in a meeting, focused on other work, or out of the office.

Slack vice president of product Jackie Rocca said the feature is also helpful in time-sensitive situations. One example she cited was workers attempting to respond to a customer issue. The expert who would normally resolve the problem, however, is offline and by the time they get online there’s been a lengthy conversation with the customer and other workers about the issue.

Rather than scrolling through the back-and-forth between the customer and co-workers, the expert could use Slack AI to summarize the chat and get the gist of what’s going on right away.

The same general concept applies to channel summaries. You can choose to summarize recent conversations, from the last seven days, or within a specific time period.

Markets sold off on a hotter-than-expected inflation report on Tuesday as some fear this could be an early sign that inflation's decline will get stuck above 2% and cause the Federal Reserve to hold interest rates higher for longer.

But Chicago Fed President Austan Goolsbee said in remarks at an event hosted by the Council on Foreign Relations in New York that one Consumer Price Index (CPI) report print isn't necessarily the sign of a new trend.

"Let's not get amped up when you get one month of CPI that was higher than what you expected it to be," Goolsbee said during a question and answer session. "It is totally clear that inflation is coming down."

And to Goolsbee the underlying trend will remain the most crucial when deciding when rates should be cut.

"Even if inflation comes in a bit higher for a few months ... it would still be consistent with our path back to target," Goolsbee said. "I don't support waiting until inflation on a 12-month basis has already achieved 2% to begin to cut rates."

Earnings and stock buybacks are driving the Yahoo Finance trending tickers page on Wednesday morning.

Lyft (LYFT) stock rose more than 30% after the company beat earnings expectations after the bell Tuesday night. Shares had soared over 60% in after-hours trade due to a reporting error in the company's release. Lyft initally said it expected profit margins to expand by 500 basis points. It later corrected the number to 50 basis points and the stock pared gains.

Uber (UBER) stock soared almost 13%, hitting an all-time high, after the company announced a $7 billion stock buyback program.

Robinhood (HOOD) shares were up nearly 10% after the trading platform reported better-than-expected quarterly results. Robinhood's $0.03 earnings per share surprised Wall Street analysts who had projected the company to report a loss of about $0.01.

Upstart Holdings (UPST) stock tumbled more than 20% after the company's revenue forecast for the current quarter missed Wall Street estimates. Upstart expects revenues for the current quarter of about $125 million, below analyst expectations for about $152 million.

Stocks had their worst day of 2024 on Tuesday as a hotter-than-expected inflation report spooked investors.

But with stocks at record highs, many Wall Street strategists pointed out that there were signs of resilience amid a day that the Dow Jones (^DJI) dropped more than 500 points and the S&P 500 (^GSPC) fell about 1.4%.

Perhaps, most notably, stocks didn't fall off a cliff. The S&P 500 avoided a 2% daily drawdown, which it hasn't seen since February 2023. The Russell 2000 (^RUT) found a support around its 50-day moving average, a key technical factor, according to CMT chief global strategist Jay Woods.

Woods told Yahoo Finance he expected the weakness to continue into today but instead the market has been "resilient."

Less than 12 hours removed from yesterday's souring sentiment on Federal Reserve interest rate cuts, stocks are rebounding with the Nasdaq Composite (^IXIC) up almost 1%.

Fundstrat head of research Tom Lee said in a note to clients it's "too early" to call a market top for the first quarter of 2024.

"We would look for a top to be more of a 'stocks sell off on good news,' meaning, we get a great macro [economic] data point, and stocks sell off," Lee wrote.

US stocks rose on Wednesday, looking to find a footing after hotter-than-expected inflation data drove a sell-off and dashed hopes for interest rate cuts before the summer.

The Dow Jones Industrial Average (^DJI) added 0.4%, a bounce-back for the blue-chip index from a 500-point drop and its worst day since March 2022. The S&P 500 (^GSPC) added roughly 0.6%, while the Nasdaq Composite added more than 0.7% — also on the heels of sharp declines.