By Yasin Ebrahim
Investing.com -- Stocks wobbled but ultimately ended lower on Wednesday, as the fastest pace of inflation in decades stoked bets that the Federal Reserve will be forced to deliver a much larger than expected 1% rate hike later this year.
The S&P 500 closed down 0.5%, the Dow Jones Industrial Average fell 0.7%, or 208 points, the Nasdaq fell 0.1%.
U.S. inflation rose 9.1% in June to hit a fresh four-decade high, topping economists' forecast for a 9% rise, driven by an 11.2% leap in gas prices and a 1.0% increase in food prices.
This “will be the last big increase,” Pantheon Macroeconomics said, as margins fall, wage gains slow and commodity prices decline. “But right now this report will make for very uncomfortable reading at the Fed,” it added.
With just two weeks to go until the Fed’s July meeting, investors are now betting that the Fed will be forced to deliver a 1% rate hike, bringing the central bank closer to reaching a restrictive stance on monetary policy. Following the report, Atlanta Federal Reserve President Raphael Bostic fueled further speculation of a 1% rate hike, saying "everything was in play."
The odds of a 1% rate hike jumped to 76% from just 10% a day earlier, according to Investing.com’s Fed Rate Monitor Tool.
Bank stocks, which will be in the spotlight on Thursday as JPMorgan (NYSE:JPM) kicks off the quarterly earnings for major Wall Street banks, were hurt by ongoing concerns that a recession is on the horizon.
Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), Citigroup Inc (NYSE:C) were down more than 1%.
The dip-buying in tech was on show once again as big tech stocks pared most of their losses as Treasury yields retreated from session highs. Still, Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) remained in the red.
Twitter (NYSE:TWTR), meanwhile, jumped 8% after the social media giant sued Elon Musk to prevent him from withdrawing his $44 billion take-private deal.
As a court battle between Musk and Twitter looms, the latter appears to have "a strong iron fist upper hand,” Wedbush said, with the stock now “factoring in some significant chance that Musk will ultimately have to pay Twitter a settlement well north of $1 billion.”
Stitch Fix (NASDAQ:SFIX) climbed 13% after Benchmark Capital’s Bill Gurley bought 1 million shares in the company at a price of $5.43.
On the earnings front, Delta Air Lines (NYSE:DAL) reported quarterly results that missed on the bottom line as rising fuel prices were a drag on margins offsetting better-than-expected revenue. Its shares fell nearly 5%.