Market Snapshot: Dow drops 700 points as stocks tumble after hotter-than-expected CPI reading

by | Sep 13, 2022 | Stock Market

U.S. stocks dropped sharply Tuesday after an unexpected monthly rise in the August consumer-price index dashed hopes for a further slowdown in inflation and reinforced expectations Federal Reserve policy makers will continue to aggressively tighten monetary policy.What’s happening
The Dow Jones Industrial Average
DJIA,
-2.72%
dropped 847 points, or 2.6%, to 31,534.

The S&P 500
SPX,
-3.08%
was down 124 points, or 3%, at 3,987.

The Nasdaq Composite
COMP,
-3.92%
tumbled 476 points, or 3.9%, to 11,791.

Popular, index-tracking exchange-traded funds, including the SPDR S&P 500 ETF Trust
SPY,
-3.11%
and the SPDR Dow Jones Industrial Average Trust ETF
DIA,
-2.75%
were down sharply in line with their benchmarks. The tech-concentrated Nasdaq-100
NDX,
-4.15%
and the Invesco QQQ Trust ETF
QQQ,
-4.15%
were down 4%.

The S&P 500 had climbed 5.2% over the last four trading days through Monday.What’s driving markets The August consumer-price index, or CPI, rose 0.1% in August, though the year-over-year rate slowed to 8.3% from 8.5% in July. Economists had looked for a monthly fall of 0.1% that would bring the year-over-year rate down to 8%. However, the core rate, which strips out volatile food and energy prices, rose 0.6%, for a year-over-year rise of 6.3%, outstripping expectations for a 0.3% monthly rise and a 6% year-over-year pace. See: U.S. inflation roars back in August, CPI shows, despite falling gas prices “Markets were jolted by a nasty CPI print this morning and are responding in kind,” said Cliff Hodge, chief investment officer for Cornerstone Wealth, in emailed comments. “Misses on both headline and core are disappointing as this bout of inflation proves to be anything but ‘transitory.’ Price gains were pervasive, with more than 70% of the CPI basket rising by at least a 4% annualized rate. Unfortunately for markets this print will reinforce the need for the Fed to remain aggressive and will likely keep a lid on risk assets over the foreseeable future,” Hodge said. Analysts described the data as a game changer. Stubborn inflation pressures will likely force the Fed “turn up the heat on its tightening campaign, which puts the broader economy at further risk of a material downturn/recession within the next year,” said Jason Pride, chief investment officer of private wealth at Glenmede. “In recognition of these uncertainties, investors should maintain an underweight risk posture, particularly given the premium valuations still prevalent in equity markets,” he wrote.

The data is seen cementing expectations the Federal Reserve will boost the fed-funds rate by another outsize 75 basis points when it meets next week, with fed-funds futures penciling in the outside prospect of a 100 basis point hike. Treasury yields jumped, with the rate on the policy-sensitive 2-year note
TMUBMUSD02Y,
3.758%
surging more 16 basis points to trade at 3.72%, near a 15-year high, and further inverting the yield curve — a phenomenon seen as a reliable recession indicator. “Overall, inflation readings remain unacce …

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