Wall Street’s main indexes closed sharply lower on Tuesday after a higher-than-expected U.S. consumer inflation reading dispelled market expectations of imminent interest rate cuts, sending U.S. bond yields higher. US Treasury.

A Labor Department report showed that U.S. consumer prices rose above forecasts in January amid a rise in housing costs.

“Stocks are in pullback mode following a still inflationary CPI report,” said Terry Sandven, chief equity strategist at US Bank Wealth Management. “Higher inflation for longer is a setback for the Federal Reserve.”

Markets have rallied this year on bets that the Fed would begin cutting rates in May. The S&P 500 closed above 5,000 for the first time on Friday. The Dow is also trading near a record level, and on Monday the Nasdaq briefly surpassed its November 2021 record close.

Following the release of the inflation data, traders’ bets for a rate cut in May of at least 25 basis points fell to 36.1% from around 58% before the data, while expectations for June stood at 74. .3%, the CME FedWatch tool showed.

Shares of major rate-sensitive companies such as Microsoft, Alphabet, Amazon.com and Meta Platforms fell as U.S. Treasury bond yields hit two-month highs.

According to preliminary data, the S&P 500 lost 68.14 points, or 1.36%, to finish at 4,953.70, while the Nasdaq Composite lost 282.64 points, or 1.77%, to 15,659.91. The Dow Jones Industrial Average fell 522.05 points, or 1.35%, to 38,275.33.

By Carolina Mandl in New York and by Johann M Cherian and Ankika Biswas in Bengaluru; with additional reporting by Medha Singh