Inflation fears have returned, and stocks are getting hammered

• Wholesale inflation data for January was much hotter than expected.
• Stocks sold off, with the Dow losing more than 700 points and the Nasdaq dropping 1%.
• Investors worry it's another reason for the Fed to wait and see before cutting rates this year.

Inflation reared its head again on Friday, and investors are spooked.

The latest numbers show wholesale prices rose 0.8% in January, significantly more than the 0.3% increase expected by economists. It follows a 0.6% increase in December. On an annual basis, headline PPI rose 2.9%.

The data showing prices continuing to rise last month come just days after President Donald Trump insisted in his State of the Union that inflation is "plummeting," and they highlight the precarious path of rate cuts in 2026.

Stocks sold off, with the Dow losing more than 600 points and tech losses shaving 1% from the Nasdaq.

Here's where major indexes stood at 12 p.m. ET on Friday:

• S&P 500: 6,871.65, down 0.54%
• Dow Jones Industrial Average: 48,947.35, down 1.1% (-551.85 points)
• Nasdaq Composite: 22,685.90, down 1%

Chris Zaccarelli, chief investment officer for Northlight Asset Management, said that the revival of inflation fears on Wall Street may shift focus away from AI disruption, while giving the Federal Reserve an incentive to be cautious before making any changes to monetary policy.

"This morning's higher inflation data is one more thing to worry about within the 'traditional' economic analysis of price stability and full employment, even before investors factor in the disruptive potential of AI's impact on the economy," he said.

David Morrison, senior market analyst at financial services firm TradeNation, said that investors have been worried about what hotter-than-expected PPI could mean for markets, a scenario that is playing out now.

"There are growing concerns about US inflation which looks as if it may start to pick up again," he said. "Last week's Core PCE came in at 3.0% year-on-year, hotter than expected, moving in the wrong direction, and still well above the Fed's 2% target.

Uet, others said that, while stocks sold off, Treasury yields continued to move lower, suggesting bond investors don't see PPI as a major factor in markets on Friday.

"Markets aren't paying attention to PPI because, if it was, the 10-year Treasury wouldn't be below 4%. My sense is that markets are discounting an attack on Iran, and that trumps all at the moment," Jamie Cox, managing partner for Harris Financial Group, said.

The 10-year Treasury yield was 3.97% on Friday, down four basis points.