U.S. stocks took a sharp nosedive on Wednesday following the release of new inflation data that indicated prices had accelerated for the third consecutive month, raising concerns about the possibility of Fed rate cuts this year. The S&P 500 slumped 1.1% in early trading, on track for one of its worst days of the year so far. The Dow Jones Industrial Average was down 451 points, or 1.2%, and the Nasdaq composite was 1.1% lower.

The fear of inflation continuing to rise has caused traders to doubt the possibility of rate cuts by the Federal Reserve, with expectations shifting towards fewer cuts throughout the year. The recent CPI data, which showed a monthly increase driven by gasoline prices and rent, has led to a decrease in bets that the Fed could begin cutting rates in June. Investors are now seeing just a 25% chance of that happening, down from nearly 74% a month ago.

The rise in Treasury yields following the inflation report has added further pressure on the stock market, with real estate stocks in the S&P 500 falling the most among all sectors. Analysts are divided on the future trajectory of inflation, with some expecting prices to tick down again, while others view the latest data as a red flag.

Despite the disappointing inflation data, big U.S. companies are gearing up to report their first-quarter earnings, with Delta Air Lines already delivering stronger-than-expected results. The airline reported strong demand for flights and expects this trend to continue through the spring, leading its stock to climb 3.4%. Other airline stocks also rose in response.

The banking industry will soon take the spotlight in earnings season, with JPMorgan Chase and Wells Fargo among those reporting on Friday. The overall sentiment on Wall Street is cautious, with concerns about the impact of rising inflation on interest rates and the economy. Chair Jerome Powell and other Fed officials have emphasized that the central bank's rate-cutting decision will be based on inflation trends and economic performance, raising doubts about the possibility of rate cuts in the near future.