The Dow slumped more than 1,000 points heading into the final hour of trading Tuesday as losses accelerated led by technology stocks while bond yields soared, leaving all three equity benchmarks on track for their worst session since at least mid-June following an unexpected uptick in August consumer-price inflation.
- The Dow Jones Industrial Average DJIA dropped 1,070 points, or 3.3%, to 31,307.
- The S&P 500 SPX was down 148 points, or 3.6%, at 3,961.
- The Nasdaq Composite COMP tumbled 544 points, or 4.5%, to 11,719.
Popular, index-tracking exchange-traded funds, including the SPDR S&P 500 ETF Trust SPY and the SPDR Dow Jones Industrial Average Trust ETF DIA were down sharply in line with their benchmarks. The tech-concentrated Nasdaq-100 NDX and the Invesco QQQ Trust ETF QQQ were down 4%.
Both the S&P 500 and Nasdaq are on track for their biggest percentage-point declines since June 13, while the Dow is on track for its biggest drop since May 18, and its first decline of more than 1,000 points since Aug. 26.
The S&P 500 had climbed 5.2% during a four-day winning streak that lasted through Monday’s close.
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.
The notion that inflation may be stickier than economists had expected — which in turn could force the Federal Reserve to maintain its aggressive tightening of monetary policy for longer — was enough to send U.S. stocks into a tailspin as volatility surged, with the CBOE Volatility Index, otherwise known as “the VIX”, VIX rising more than 8% to 25.9 in afternoon trade.
“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 Charlotte, NC. “Misses on both headline and core are disappointing as this bout of inflation proves to be anything but ‘transitory’. 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.”
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 BX:TMUBMUSD02Y surging more 19 basis points to trade at 3.758%, near a 15-year high, and further inverting the yield curve — a phenomenon seen as a reliable recession indicator.
“Today’s inflation print is not the data the Fed wanted to see the week before they make a significant decision on the policy rate,” said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management in Minneapolis, MN. “With core inflation rising twice as fast as economist’s expectations and the annualized inflation rate, stripping out food and energy, rising to 6.3%, the Fed clearly has their work cut out for them. ”
“Overall, inflation readings remain unacceptably high for policy makers. Coupled with a labor market that is still strong, the data seal the deal for another aggressive, 75-basis point, rate hike next week,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note.
The U.S. dollar also strengthened on the back of higher yields, with the ICE U.S. Dollar Index DXY, a gauge of the greenback’s strength compared to a basket of its main rivals, was up 1.3% at 109.72.
Companies in focus
- Megacap tech stocks and consumer-discretionary stalwarts have helped to lead Tuesday’s selloff, while “value” plays like the consumer-staples sector outperform. Apple Inc. AAPL, Microsoft Inc. MSFT, Amazon.com Inc. AMZN, Alphabet Inc. GOOGL and Tesla Inc. TSLA were all down 4% or more.
- The so-called unprofitable tech names like those held in the ARK Innovation exchange-traded fund ARKK were among the worst performers on Tuesday. The ARK ETF was off 6.6%.
- Oracle Corp. ORCL late Monday reported lower earnings than expected late Monday and executives’ profit forecast also came in lower than analysts were projecting, as a strengthening dollar took its toll. Oracle shares turned modestly higher in afternoon trade, erasing earlier losses.
- Peloton Interactive Inc. PTON said late Monday that it has accepted the resignations of co-founders John Foley and Hisao Kushi, the latest leadership shake-up to hit the troubled interactive fitness company. Shares were down more than 10%.
- Online clothing-rental platform Rent the Runway Inc. RENT on Monday announced plans to slash corporate staff after summer-season demand wobbled. Shares dropped 32.6%.
- Only a handful of S&P 500 companies were clinging to gains for the day Tuesday afternoon, including Twitter Inc. and four materials stocks: Albermarle Corp. ALB, Corteva Inc. CTVA, CF Industries Holdings Inc. CF and Mosaic Company MOS. All 11 S&P 500 sectors were trading in the red.
—Steve Goldstein contributed to this article.
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