Wall Street Suffers Its Worst Loss In Two Years Following CPI Data

NEW YORK CITY – On Tuesday, a broad sell-off sent US stocks tumbling after a stronger-than-expected inflation report dashed hopes that the Federal Reserve would relent and ease policy tightening in the coming months.

All three major U.S. stock indexes fell sharply, snapping four-day winning streaks and posting their biggest one-day percentage drops since June 2020, when the COVID-19 pandemic was in full swing.

Surging risk-off sentiment pushed every major sector into negative territory, with interest-rate-sensitive tech and tech-adjacent market leaders such as Apple Inc (AAPL.O), Microsoft Corp (MSFT.O), and Amazon.com Inc (AMZN.O) weighing the most heavily.

“(The sell-off) is not surprising given the rally leading up to the data,” said Paul Nolte, portfolio manager at Chicago-based Kingsview Asset Management.

The Labor Department’s consumer price index (CPI) came in above expectations, breaking a cooling trend and casting doubt on the Federal Reserve’s ability to ease up on interest rate hikes after September.

Core CPI, which strips out volatile food and energy prices, increased more than expected, rising to 6.3% from 5.9% in July.

The report points to “very persistent inflation and that means the Fed is going to remain engaged and raise rates,” Nolte added. “And that’s an anathema to equities.”

Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC’s policy meeting next week, with a 32% probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME’s FedWatch tool.

“The Fed has increased (interest rates) by three full percentage points in the last six months,” Nolte said. “We have not yet felt the full impact of all those increases. But we will feel it.”

“We are at recession’s doorstep.”

Worries persist that a prolonged period of policy tightening from the Fed could tip the economy over the brink of recession.

The inversion of yields on two- and 10-year Treasury notes, regarded as a red flag of impending recession, widened further.

The Dow Jones Industrial Average (.DJI) fell 1,276.37 points, or 3.94%, to 31,104.97, the S&P 500 (.SPX) lost 177.72 points, or 4.32%, to 3,932.69 and the Nasdaq Composite (.IXIC) dropped 632.84 points, or 5.16%, to 11,633.57.

All 11 major sectors of the S&P 500 ended the session deep in red territory.

Communications services (.SPLRCL), consumer discretionary (.SPLRCD) and tech (.SPLRCT) shares all plummeted more than 5%, while the tech subset semiconductor sector (.SOX) sank 6.2%.

Declining issues outnumbered advancing ones on the NYSE by a 7.76-to-1 ratio; on Nasdaq, a 3.64-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week high and 16 new lows; the Nasdaq Composite recorded 29 new highs and 163 new lows.

Volume on U.S. exchanges was 11.58 billion shares, compared with the 10.33 billion average over the last 20 trading days. – NMH

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