The US stock market showed signs of recovery on Wednesday as investors sought to regain their footing after being rattled by hotter-than-expected inflation data. The Dow Jones Industrial Average (DJI) managed to add 0.4% after experiencing a steep 500-point decline on Tuesday, marking its worst day since March 2022. Similarly, the S&P 500 (GSPC) saw an increase of approximately 0.6%, while the Nasdaq Composite (IXIC) climbed more than 0.7%.

The sell-off was triggered by the surprise consumer inflation report, which raised concerns about the Federal Reserve's stance on interest rate cuts. Investors had hoped for rate cuts in early spring, but the inflation data dashed those expectations, leading to a bearish sentiment in the market. However, some market experts cautioned against overreacting to one inflation report, emphasizing that the underlying trend still indicated inflation approaching the Fed's 2% target.

In addition to the inflation report, investor sentiment was also affected by a typo in Lyft's financial update, causing wild fluctuations in the ride-hailing company's stock. Although Lyft initially experienced a surge of 67%, the rally lost steam after the correction of the error. Despite the correction, Lyft's stock remained up by a more modest 30% during Wednesday's trading session.

Meanwhile, Tesla's stock saw a modest rise of about 1.5% in afternoon trade. However, according to a poll conducted by Morgan Stanley among Tesla's institutional investors, many are bearish on the stock's performance over the next six to twelve months. Investors expressed doubts about sales growth and expressed concerns about Tesla's exclusion from the AI-related run-up in the technology sector.

The market's reaction to the inflation report also led investors to reconsider their expectations for interest rate cuts. Initially, there was a 100% chance of a rate cut by the May meeting, but this has now decreased to a 37% likelihood, according to the CME FedWatch Tool. Investors have also adjusted their expectations for the number of rate cuts this year, with Bloomberg data suggesting an expectation of around four cuts, down from a peak of six cuts seen after the December Fed meeting.

Amidst the market volatility, Slack launched its Slack AI, an artificial intelligence assistant designed to help users manage and catch up on work threads and channels more efficiently. Salesforce's stock saw an increase of more than 2% following this announcement.

Although Tuesday's sell-off was significant, the market showed resilience as stocks didn't experience a severe decline. The S&P 500 managed to avoid a 2% daily drawdown that hasn't been seen since February 2023, and the Russell 2000 found support around its 50-day moving average, a key technical factor. While the weakness was initially expected to continue, the market has displayed resilience and rebounded on Wednesday, with the Nasdaq Composite gaining almost 1%.

Overall, the US stock market appears to be recovering from the sell-off driven by the hotter-than-expected inflation data. Investors are adjusting their expectations for interest rate cuts and remain cautious about certain stocks, such as Tesla. The market's ability to rebound and show resilience despite the volatility suggests a cautious optimism among investors.