A fresh unexpected surge in inflation blindsided markets, shattering hopes for imminent Fed rate cuts and sending stocks down across the board. In March 2024, the annual Consumer Price Index (CPI) inflation rate surged to 3.5%, up from February's 3.2%, surpassing expectations set at 3.4%.

Adding to concerns, core inflation, which excludes energy and food, also exceeded expectations, reaching 3.8% compared to the anticipated 3.7%, dismissing any justifications solely attributed to higher gasoline price pressures.

Consequently, investors sharply revised down their expectations for Fed rate cuts, now anticipating the commencement of any easing policy no earlier than September, with less than two rate cuts expected by year-end.

What's Hot/Cold In The CPI Basket?

Expenditure categories witnessing the highest month-over-month seasonally adjusted price increase in March were:

• Motor vehicle insurance: +2.6%
• Motor vehicle maintenance and repair: +1.7%
• Gasoline (all types): +1.7%
• Hospital services: +1%
• Meats, poultry, fish, and eggs: +0.9%

Those showing the lowest monthly inflation were:

• Fuel oil: down 1.3%
• Used cars and trucks: down 1.1%
• Cereals and bakery products: down 0.9%
• Other food at home: down 0.5%
• Airline fares: down 0.4%

Wednesday's Sector Performance

By midday trading in New York, losses were broad-based within indices.

• 454 out of S&P 500 stocks traded in the red
• 93 Nasdaq 100 stocks were negative
• 1,783 out of Russell 2000 stocks were negative
• 898 out of Russell 1000 stocks were negative

No sectors managed to evade daily losses, with rate-sensitive pockets of the markets, such as real estate, feeling the brunt more acutely than others.

Energy managed to hold almost steady, as rising gasoline prices improved the outlook for oil companies.

Nine real-estate stocks tumbled by more than 7%:

Looking at different industries, regional banks and solar stocks fell the most.

• The SPDR S&P Regional Bank ETF (NYSE:KRE) fell 4.7%, on track for the worst day since late January.
• The Invesco Solar ETF (NYSE:TAN) fell 4.5%

Eight regional bank stocks tumbled more than 7% Wednesday:

Read now: 'This Puts The Fed In Quite A Tricky Position': 7 Economists Weigh In On March Inflation Report

Image generated using artificial intelligence via Midjourney.