Stocks dip in choppy session after red-hot inflation data

U.S. stocks edged lower for a third straight session Wednesday as investors mulled hotter-than-expected inflation data for June.

The S&P 500 slipped 0.5%, and the Dow Jones Industrial Average shed 210 points, or roughly 0.7%, though both indexes pared losses from sharper declines earlier in the day. The Nasdaq Composite closed down 0.2% but was an outlier for much of the session, trading in the green as technology stocks rebounded.

Treasury yields were in focus on Wednesday, with the most dramatic moves happening at the front end of the yield curve. The 10-year rose as high as 3.04% following the CPI print before retreating, with 2-year yields rising as much as 3.17%, prompting a further inversion.

The yield curve “inverts” when yields on shorter-dated Treasuries rise above those of longer-dated ones and have typically preceded recessions on Wall Street.

Meanwhile in currency markets, the euro fell below parity — or a 1:1 value — with the dollar early Wednesday, the first time the currency’s value has slipped below this mark since 2002.

In June, headline inflation rose 9.1%, the most since November 1981 and well above estimates for an 8.8% increase in prices.

June’s figures likely seal another 0.75% increase in interest rates from the Federal Reserve at the conclusion of its July 26-27 policy meeting, with some even speculating officials may consider an even more dramatic 100 point hike.

“Overall, this report confirms that the Fed will need to hike by 75bp again at the end-July meeting,” Capital Economics Senior U.S. Economist Michael Pearce said. “While some will draw parallels with the shockingly bad May CPI report, the backdrop is markedly different — commodity prices have fallen sharply and we’ve seen clearer signs of an economic slowdown, both of which will contribute to weaker price pressures ahead.”

In addition to the latest inflation print, a lineup of quarterly results are also in the queue for investors as major companies kickstart the new earnings season.

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Delta Air Lines (DAL) reported earnings that missed expectations on Wednesday morning as higher costs bit the airline currently battling with excess demand and constrained capacity. Shares of Delta fell 4.7%.

PepsiCo (PEP) was an early reporter on Tuesday. The beverage-maker beat Wall Street estimates but warned of inflationary pressures on the business.

“Balance of the year inflation is higher than it is for the first half of the year,” Pepsi CFO Hugh Johnston told analysts in a call. “I think we’ve mentioned in the past, we’re in the teens in terms of commodity inflation. That will continue, but a little bit higher in the back half.”

Rising prices associated with inflation and higher interest rates will be in focus among investors as other big names among Corporate America release results. JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) are among the big banks to follow suit Thursday and Friday.

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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