Dow Jones Futures: Market Rally Sells Off On Hot Inflation, 'Dramatically'

Dow Jones futures fell modestly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally sold off Thursday as Treasury yields soared on a hot inflation report and expectations of an even-more aggressive Federal Reserve.

Despite the broad weakness, Datadog (DDOG) gapped above its 50-day line Thursday on blowout earnings. DDOG stock, one of the last highly valued software stocks to crack, could be among the first to fully recover. But Affirm (AFRM) crashed Thursday afternoon, after the “buy now, pay later” leader reported mixed results amid soaring expenses.

Nutrien (NTR), Blackstone (BX), Eagle Bulk Shipping (EGLE) and BHP Group (BHP) flashed buy signals Thursday. Nutrien and BHP report earnings next week, however, making them riskier to buy now.

Notable Earnings

Expedia (EXPE), Textainer Group (TGH) and Cloudflare (NET), reported earnings after the close Thursday.

EXPE stock rose solidly overnight on strong earnings. Textainer stock fell modestly on mixed results. EXPE and TGH stock had closed in buy range.

NET stock popped in extended action on strong revenue guidance after the software maker reported in-line earnings. Cloudflare closed up 1%, after initially reclaiming its 50-day line and testing its 200-day line intraday. NET stock is signaling a move above at least its 50-day on Friday.

EXPE stock is on IBD Leaderboard as an earnings option play. BHP stock is on the IBD 50.

The video embedded in this article discussed Thursday’s market action and analyzed three stocks: Datadog, Blackstone and NTR stock.

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Yields Soar On Hot Inflation, Aggressive Fed

The January consumer price index shot up 7.5% vs. a year earlier, the hottest inflation rate since February 1982. Core inflation rose to 6%. Both increased more than expected.

That raised expectations for bigger, faster Fed rate hikes, with investors now almost fully pricing in a half-point rate increase at the March 15-16 meeting.

St. Louis Fed President James Bullard said the January inflation data made him “dramatically” more hawkish. Bullard, a voting FOMC policymaker this year, now favors a 50-point hike in March, a big shift in less than two weeks. He wants a cumulative increase of 100 basis points by July 1. But the market is pricing in more, suggesting decent odds of at least two half-point Fed rate hikes in the next three meetings.

It’s possible the Fed could raise interest rates at every meeting in 2022.

The 10-year Treasury yield shot up 10 basis points to 2.03%, crossing the 2% level for the first time in 30 months. The two-year Treasury yield skyrocketed 26 basis points to 1.61%. That’s higher than the 10-year yield was at the end of 2021.