Inflation data jolted stocks and bonds. This will decide what happens next.

A day after January’s hotter-than-expected consumer-price index drew a strong response from financial markets, investors and traders were questioning whether that knee-jerk reaction was justified or went a bit too far.On Wednesday, equities were attempting to recover from Tuesday’s sharp selloff and buyers returned to the Treasury market, which pushed most yields lower. Only a day ago, stocks and bonds sold off in tandem: the Dow Jones Industrial Average DJIA fell by 524.63 points or 1.4% for the largest one-day decline since March 22, 2023 and Treasury yields finished at their highest levels in months.Perhaps the biggest…