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Stock futures are flat following a steep sell-off spurred by hot inflation

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Traders on the floor of the NYSE, Feb. 9, 2022.
Source: NYSE

Stock futures were flat in overnight trading Thursday after a sharp sell-off on Wall Street spurred by the hottest inflation reading in four decades.

Futures on the Dow Jones Industrial Average dipped just 30 points. S&P 500 futures and Nasdaq 100 futures were little changed.

Thursday’s rout in risk assets came as Treasury yields spiked in reaction to data that showed consumer prices surged more than 7% last month, the highest gain since February 1982. The 10-year Treasury yield jumped above 2% for the first time since 2019, while the rate-sensitive 2-year yield soared more than 26 basis points at one point in its biggest intraday move since 2009.

The hotter-than-expected inflation reading prompted St. Louis Fed President James Bullard to call for accelerating rate hikes — a full percentage point increase by the start of July.

Futures market also repriced rate-hike odds as CME data pointed to a near-100% chance of a 50-basis-point increase at the March meeting. Meanwhile, the market is forecasting a more aggressive schedule for the rest of this year, calling for as many as seven hikes.

“The Fed has a Goldilocks and Three Bears Problem, since moving quickly and persistently off of policy that is too easy clearly needs to happen,” Rick Rieder, BlackRock’s chief investment officer of global fixed income, said in a note.

“While the time has come (or did months ago) to move policy persistently and aggressively away from overly accommodative conditions, and toward a more neutral and appropriate stance, executing on this pivot is going to be a real challenge for policymakers,” Rieder said.

On Thursday, the blue-chip Dow dropped more than 500 points, breaking a three-day winning streak with its worst daily performance since Jan. 18. The S&P 500 and the Nasdaq Composite fell 1.8% and 2.1%, respectively.

Still, the major averages are on pace to post their third positive week in a row with modest gains. The Dow is up 0.4% this week, while the Nasdaq has gained 0.6%. The S&P 500 is only up 0.1% after Thursday’s decline.

“I expect that we’ll see a return of the volatility that was prevalent for most of the month of January in the wake of this report,” said Brian Price, head of investment management at Commonwealth Financial Network. “Investors may want to buckle up as it could be a rough ride for risk assets until inflationary data starts to abate, and I expect that it will, as we move through the year.”

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