Wall Street learns an important lesson. Don’t fight the Fed

Just one day after printing new all-time highs, a lackluster inflation reading sent US stocks into a nosedive on Tuesday.

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link. A lackluster inflation reading sent US stocks into a nosedive on Tuesday just one day after markets printed new all-time highs. That sudden volatility highlights something that we often write about in Before the Bell: the major mismatch between policymaker and investor expectations for interest rate cuts this year. Federal Reserve officials, including Chair Jerome Powell, have repeatedly said they envision at most three rate cuts in 2024. Wall Street, meanwhile, has ignored those warnings and has opted to practice unflinching optimism instead. Investors, who have come down from lofty dreams of seven rate cuts in 2024 late last year, were still expecting four to five cuts in 2024 as of Monday, according to the CME FedWatch Tool. But markets had their worst day on Tuesday since March 2023, and that drop – the blue chip Dow fell 525 points or 1.4%, the S&P 500 was also down 1.4% and the tech-heavy Nasdaq Composite was 1.8% lower – was partially the result of a great reckoning for traders.