Stock Market Today: Stocks Struggle After CPI, Fed Minutes

The latest inflation data sparked a choppy session for stocks Wednesday, with all three major indexes ending in the red. 

Data from the Bureau of Labor Statistics gave a mixed picture on consumer price growth in March, as the headline Consumer Price Index (CPI) slowed but core CPI, which excludes volatile food and energy prices, came in above what was seen in February. 

Taking a closer look at the numbers, the March CPI was up 0.1% month-over-month and 5.0% year-over-year – the latter the smallest annual increase since May 2021. Meanwhile, core CPI, which is often seen as a better tell on future inflation, rose 0.4% on a monthly basis and 5.6% annually. Areas that saw the biggest price increases were shelter and food, while the cost to buy used cars plunged (-11.2% y/y).

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"U.S. stocks initially rallied after the March inflation report showed consumer prices are decelerating, prompting bets that the Fed might be done tightening," says Edward Moya, senior market strategist at currency data provider OANDA (opens in new tab). "The initial stock market rally was rightfully faded as inflation is still too high and as rate cut bets are still aggressively getting priced in." Moya added that investors might not want to pile into risky bets ahead of the start of earnings season, which kicks off on Friday.

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Also in focus today were the minutes from the Federal Reserve's March meeting, where it lifted interest rates by 25 basis points (0.25%). However, the collapse of several banks, including Silicon Valley Bank – which occurred just before the central bank's gathering – led "many participants" to lower their federal funds rate target. Additionally, several members considered pausing in order to "allow more time to assess the financial and economic effects of recent banking-sector developments and of the cumulative tightening of monetary policy," the Fed minutes (opens in new tab) said. Ultimately, the objective to bring down inflation took precedence, the minutes noted. 

"Quick policy actions and some stability in financial markets prior to the March 22 announcement opened the door for another rate hike, even though the fallout was expected to dampen the economy and warranted a lower terminal fed funds rate than what policymakers were eyeing," says Sal Guatieri, senior economist at BMO Capital Markets (opens in new tab). "With core inflation still running high, there's no reason to expect a different outcome in May, assuming the banking sector stress remains contained." The next Fed meeting is scheduled for May 2-3.

At today's close, the Dow Jones Industrial Average was down 0.1% at 33,646, the S&P 500 was off 0.4% at 4,091, and the Nasdaq Composite shed 0.9% to 11,929.

How to inflation-proof your portfolio

The bottom line from today's economic data is that while inflation has slowed considerably from last summer's 40-year peak, it still remains stubbornly high. For investors, there are still plenty of opportunities to add the best inflation-proof investments to their portfolio until the Fed can bring price growth down to a more typical pace. 

One of the top inflation-resistant assets is oil, and investors can gain exposure to it via the best energy stocks and energy ETFs. However, it's important for investors to know that many assets that are designed to protect portfolios against rising prices can be negatively impacted once inflation returns to normal levels. Unlike, say, the best dividend stocks, they may not be the most ideal picks for buy-and-hold investors.