Wall St Forfeits Gains As Treasury Yields Pare, Inflation Worries Loom

Wall Street edged lower on Tuesday, reversing earlier gains as Treasury yields rebounded and once again pulled growth stocks back into red territory.

All three major U.S. stock indexes were in negative territory, having lost solid, early session gains that were driven by inline economic data and benchmark Treasury yields retreating from their highest point in nearly three years.

But Treasury yields pared their declines in the wake of a poor $34 billion 10-year auction, which weighed on interest rate sensitive stocks and reversed the rally.

The Labor Department's CPI report showed the prices urban American consumers pay for a basket of goods posted the biggest monthly jump since September 2005, and an annual surge of 8.5%, the hottest year-on-year inflation number in more than four decades.

While the data suggested to some analysts that the current inflationary wave could be cresting, others are not so sure.

"The bottom line is inflation is going to stick around for a while," said Peter Cardillo, chief market economist at Spartan Capital Securities, added that "we could see it begin to reverse in the summer months, provided we get some cooling off in agricultural and energy prices."

Much of the topline CPI growth was attributable to an 18.3% monthly surge in gasoline prices, to a record high of $4.33 per gallon.

The report did little to budge the needle of expectations regarding impending interest rate hikes from the Federal Reserve.

"It's nearly written in the stone that we'll see a 50-basis-point rate hike in May and another in June," Cardillo said. "The Fed is behind the curve."

The chart below shows core CPI - which strips out volatile food and energy prices - along with other major indicators, all of which continue to soar well above the Fed's average annual 2% inflation target:

The Dow Jones Industrial Average fell 48.76 points, or 0.14%, to 34,259.32, the S&P 500 lost 10.75 points, or 0.24%, to 4,401.78 and the Nasdaq Composite dropped 38.93 points, or 0.29%, to 13,373.02.

Energy shares enjoyed the largest percentage gain among the 11 major sectors in the S&P 500, jumping 2.3% on the back of surging crude prices. [O/R]

First-quarter earnings season bursts through the starting gate later this week, with big banks leading the way.

Analysts have curbed their first-quarter optimism. Annual S&P 500 earnings growth was recently estimated to be 6.1%, down from 7.5% at the beginning of the year.

CrowdStrike Holdings Inc jumped 3.6% after Goldman Sachs upgraded the cybersecurity company's shares to "buy", citing elevated demand.

Advancing issues outnumbered declining ones on the NYSE by a 1.28-to-1 ratio; on Nasdaq, a 1.06-to-1 ratio favored decliners.

The S&P 500 posted 24 new 52-week highs and seven new lows; the Nasdaq Composite recorded 49 new highs and 180 new lows.