Rising bond yields after a hotter than expected inflation report undercut equities Wednesday but a recovery in megacaps from early losses helped the major indexes rebound from the morning lows. The Dow Jones industrial average dipped by 0.5 percent, the S&P 500 eased 0.3 percent, and the Nasdaq was flat. US bond yields and the dollar rose while oil prices dropped.

The broad market was hurt by news that consumer prices rose by 0.5 percent on the month and by 3.0 percent on the year, well above expected, and another blow to hopes for rate cuts this year. Despite the unfavorable macro news, megacaps including Apple and Meta found buyers at the morning lows and rebounded to show good gains by day's end.

Among sectors, best were consumer discretionary and consumer staples. Small caps and mid caps lagged. Weak sectors included energy, financials, industrials, real estate and materials.

Fed rate cut expectations have been pared to anticipate a single rate cut by year end, with odds of a rate cut in June down to 34 percent, based on Fed funds futures, versus 59 percent before the CPI report. Fed Chair Jerome Powell said the CPI tends to confirm his view that there has been progress on inflation but more progress is needed and that policy needs to remain restrictive. He also said he wouldn't get too excited about one report.

Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.

Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.