The world’s biggest bond market sold off after another hot inflation report reinforced bets the U.S. Federal Reserve will be in no rush to cut rates even as some areas of the economy show signs of sluggishness.

Treasury yields rose and stocks fell as the data underscored the Fed’s challenges in achieving its 2 per cent inflation goal. Following the steps of the consumer-price data, the producer price index also signaled a pickup in cost pressures. In contrast, retail sales missed estimates. While it’s probably early to draw any conclusions, the set of figures raised some eyebrows about the specter of stagflation.

“Well, this is a pickle,” said Chris Low at FHN Financial. “On the heels of a second steamy CPI, and just a week before the Fed meeting, the February PPI rises at twice the expected pace. Retail sales were ‘meh’ at best, if not downright weak.”

U.S. 10-year yields climbed 10 basis points to 4.29 per cent. Traders pared bets on Fed cuts in 2024, with swaps fully pricing in a first move in July. The S&P 500 fell to around 5,150 ahead of Friday’s options expiration — which has the potential to amplify volatility. Nvidia Corp. and Tesla Inc. slid. Homebuilders sank after Lennar Corp.’s weak forecast. The dollar rose. Oil topped $81.

“In a way, today was the past month in microcosm — sticky inflation combined with signs of softness elsewhere in the economy,” said Chris Larkin at E*Trade from Morgan Stanley. “The questions now are: Will traders rethink how soon the Fed will cuts rates? And will that slow down the stock-market rally in any meaningful way?”

The inflation numbers are just not giving policymakers any incentive to ease, said Andrew Brenner at NatAlliance Securities.

The Fed is expected to keep rates unchanged at the March 19-20 meeting for the fifth straight gathering. Coming on the heels of reports warning of persistently high inflation, the focus will be on the Fed’s new “dot plot.” The median forecast of policymakers in December showed three quarter-point rate reductions for 2024.

Over two days on Capitol Hill earlier this month, Fed Chair Jerome Powell gave no evidence he was bothered by surging asset prices — which arguably work against his goal of keeping financial conditions tight enough to wring excesses out of the economy.

“Equity and bond bulls are staring at their calendars and drawing a ‘big red circle’ around the 20th of this month,” said Jose Torres at Interactive Brokers. “Folks are concerned Powell may have to pull a dangerous U-turn during his ride on the monetary-policy highway. His dovish messaging since December has driven an intense loosening in financial conditions.”

To Ian Lyngen at BMO Capital Markets, there was nothing within Thursday’s set of economic updates that will offer anything new for next week’s Fed meeting. It’s only a couple of prints and “insufficient” to draw any broad-based conclusion, he noted.

Ellen Zentner at Morgan Stanley says she expects little change to the Fed statement and the projections — with the median dot remaining at three cuts.

“Key risk: it would take just two participants to change from three cuts to two for the median dot to move to a total of two cuts in 2024 — underscoring that the risk tilts toward fewer rather than greater,” she noted. “Chair Powell is unlikely in the ‘two camp,’ and we think will push to keep the median at three.”

With February’s CPI and PPI data in hand, Bloomberg Economics estimates that the core PCE deflator — the Fed’s preferred inflation indicator — and core services excluding housing, known as “supercore,” will both moderate.

While the February PPI was stronger than expected, the details that affect PCE inflation were on the “softer side,” according to Bank of America Corp. economists including Michael Gapen.

“We continue to expect the Fed will start its cutting cycle in June,” they said. “However, it will need to see more improvement in the upcoming inflation data to have enough confidence to begin to ease.”

Amid all the economic and policy uncertainties, equities also struggled on Thursday.

That happened at a time when high valuations of a few megacaps have pushed some market observers to worry about a bubble.

Markets are showing characteristics of a bubble in the record-setting surge by tech’s so-called Magnificent Seven stocks and the all-time highs in cryptocurrencies, according to Bank of America Corp.’s Michael Hartnett.

With inflation re-accelerating, growth a little soft and risk assets unscathed, “that is very symptomatic of a bubble mentality,” Hartnett told Bloomberg Television.

While the top 10 stocks in the benchmark index are indeed historically expensive relative to the rest of the market — the other 490 are also trading at multiples significantly above their long-term averages, according to Ned Davis Research’s Ed Clissold.

If a bubble is forming in US stocks, it has plenty of room to expand before it bursts, according to strategists at Societe Generale SA.

A team at the bank led by Manish Kabra said the S&P 500 can climb to 6,250 — over 20 per cent from its current level — before reaching the multiples seen at the peak of the dot-com boom in 2000. That suggests the stock market can continue its sharp advance despite brewing worries that it has run up too far.

Corporate highlights:

• U.S. Federal Trade Commission Chair Lina Khan said in a speech that Boeing Co. became “too big to fail” after it bought up domestic competitors and became the country’s largest commercial aerospace maker.
• United States Steel Corp. plunged for a second day after President Joe Biden said the company should retain American ownership, coming out against a takeover by Japan’s Nippon Steel Corp. despite the risk of upsetting a key ally.
• Cleveland-Cliffs Inc. Chief Executive Officer Lourenco Goncalves said he’d consider another bid — with union support — for US Steel, albeit at a significantly lower price than the existing offer from Nippon Steel.
• Lennar Corp., one of the biggest US homebuilders, says it is considering a $4 billion spinoff of land it holds.
• Dollar General Inc.’s latest earnings signaled improvements in operations, but the discount retailer cautioned that turnaround efforts will take time.
• Dick’s Sporting Goods Inc. reported sales that surpassed analysts’ expectations, spurred by strong demand for sports gear.
• Reddit Inc. is telling potential investors in its initial public offering that it expects revenue in 2024 to grow by more than 20 per cent versus the previous year, according to a person familiar with the situation.
• New York Community Bancorp, the troubled commercial real estate lender that just got a capital infusion from a group led by Steven Mnuchin, said it will book a gain after selling a portfolio of consumer loans with a net book value of $899 million as well as a co-op loan.

Key events this week:

• China property prices, Friday
• Japan’s largest union federation announces results of annual wage negotiations, just ahead of Bank of Japan policy meeting, Friday
• Bank of England issues inflation survey, Friday
• U.S. industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.3 per cent
• The Dow Jones Industrial Average fell 0.3 per cent
• The MSCI World index fell 0.4 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro fell 0.5 per cent to $1.0891
• The British pound fell 0.3 per cent to $1.2755
• The Japanese yen fell 0.3 per cent to 148.24 per dollar

Cryptocurrencies

• Bitcoin fell 5.3 per cent to $69,284.01
• Ether fell 5.3 per cent to $3,780.22

Bonds

• The yield on 10-year Treasuries advanced 10 basis points to 4.29 per cent
• Germany’s 10-year yield advanced six basis points to 2.43 per cent
• Britain’s 10-year yield advanced seven basis points to 4.09 per cent

Commodities

• West Texas Intermediate crude rose 1.7 per cent to $81.11 a barrel
• Spot gold fell 0.5 per cent to $2,163.19 an ounce

This story was produced with the assistance of Bloomberg Automation.