Nasdaq falls in volatile trading as traders struggle to find their footing after another hot inflation report

Stocks dipped on Wednesday, stepping back earlier gains as investors continued to digest the latest U.S. inflation data.

The Nasdaq Composite fell 2.55%, the S&P 500 slipped 1.1% and the Dow Jones Industrial Average traded down 180 points or 0.6%.

“Everyone wants energy and food and labor costs to come down, but at the same time, our mechanism for doing that is to increase interest rates,” said Aviva Investors’ Susan Schmidt. “You’re working at counter measures and it’s worrisome for investors because they’re trying to figure out how this impacts business overall and that’s why I think you’ve seen such whipsaw action in the major indices.”

Tech shares struggled on Wednesday, tempering gains for the Nasdaq. Meta Platforms and Netflix each fell around 4% while Microsoft dipped 2% as investors continued their movement out of growth areas. Information technology and consumer discretionary sectors fell more than 2%, dragging down the S&P 500.

Meanwhile, Dow and Merck were the best-performing stocks in the Dow. IBM shares popped 1.7%. The energy sector jumped 1.7%, while utilities added 1.8%.

April’s consumer price index showed an 8.3% jump, higher than the 8.1% increase expected by economists polled by Dow Jones. The price surge remained near the 40-year high pace of 8.5% seen in March.

Core CPI, which does not include food and energy prices, gained 6.2% compared to expectations of 6%. On a monthly basis, headline CPI rose by 0.3% and core rose 0.6%. It signaled that inflation may be peaking but price pressures will likely persist.

Not all analysts are convinced the data suggests inflation has reached a peak.

“With the annual rate ticking down from 8.5% to 8.3, it can be tempting to say we’ve seen the peak, but we’ve also been head-faked before as was the case last August,” said Bankrate chief financial analyst Greg McBride

Some analysts see the data as a sign that the Fed is behind the curve in curbing inflation, which could put pressure on the central bank to act more aggressively in tightening monetary policy.

“Risk assets are under pressure with equity futures red on the assumption this will compel the Fed to extend the 50 bp cadence beyond the June/July meetings already signaled,” said Ian Lyngen, BMO’s head of U.S. rates.

Meanwhile, rising prices have been front-of-mind, particularly as the Federal Reserve hikes interest rates and trims its balance sheet to address inflation.

Following the data release, the 10-year Treasury yield briefly jumped back above the 3% mark but traded down at 2.948%.

The initial negative market reaction to the inflation print was “totally understandable,” but as prices continue to rise, the U.S. is on the brink of a “cost of living crisis,” Allianz chief economic advisor Mohamed El-Erian told CNBC’s “Squawk on the Street.”

“It’s just a matter of time until we talk about a cost of living crisis and this is what it is,” he said. “Everybody is focusing on the headline number, that’s understandable but look at the core, 6.2%, and look at the composition of inflation that suggests there are many drivers now. This is no longer an issue about just the Ukraine war, this is a broad-based inflation process that the Fed has fallen behind in a major way.”

The S&P 500 stands about 16% off its high in a pullback this year largely driven by fears of out-of-control inflation causing the Federal Reserve to aggressively tighten monetary policy.

On the earnings front, shares of Coinbase slumped more than 27.6% after the crypto exchange posted its latest quarterly results. Investors are looking ahead to reports from Walt Disney, Rivian and Beyond Meat after the bell.

Wednesday’s moves come after the Dow fell for a fourth consecutive day Tuesday in a volatile trading session, alternating between gains and losses. The S&P 500 ticked up 0.25% and the Nasdaq Composite gained about 1%.

— CNBC’s Yun Li contributed reporting

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