Stocks Slip After March Inflation Jump, Sentiment Hits Record Low

U.S. stock indexes finished mostly lower on Friday after government reports showed consumer prices rose sharply in March and the University of Michigan’s consumer sentiment measure fell to its weakest reading on record.

The Labor Department’s consumer price index for March reported a larger-than-expected increase in overall consumer prices, driven by higher energy and shelter costs and gains across a range of goods and services. Core inflation, which excludes food and energy, also accelerated in the month.

The University of Michigan’s monthly survey recorded its lowest headline reading on record. The survey showed declines in both current conditions and expectations, with respondents more pessimistic about future income and the buying climate for big-ticket items.

Markets reacted as Treasury yields rose on the inflation data. The S&P 500 and the Nasdaq Composite closed lower, and the Dow Jones Industrial Average also declined. Investors reduced exposure to interest-rate sensitive sectors such as technology and consumer discretionary, while energy stocks gained as oil prices remained elevated.

The rise in yields pushed the 10-year Treasury higher and increased short-term market volatility. The dollar strengthened against major currencies and volatility gauges ticked up after a week of gains for equities earlier in the week.

“A stronger inflation print paired with collapsing consumer confidence forces investors to reassess the path for rates and for growth,” a market strategist at a New York investment firm noted.

Federal Reserve officials have said they are prepared to keep policy restrictive until inflation shows sustained progress back toward the central bank’s 2% target. A faster-than-expected rise in prices increases the chance the Fed will delay rate cuts or maintain higher policy rates than markets had priced in.

Traders and investors will watch next week’s economic calendar for further signals, including reports on payrolls, inflation and retail sales, and comments from Federal Reserve officials for guidance on policy timing and the outlook for growth and prices.