Wall Street Falls as Inflation Data Fuels Bets on Big Rate Hikes

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U.S. stock indices fell sharply on Tuesday, snapping a four-day gaining streak, after data showed monthly U.S. consumer prices unexpectedly rose in August, bolstering bets on that the Federal Reserve will raise interest rates by 75 basis points for the third consecutive time.

* All 11 S&P sectors fell in early trading, led by a 3.3% drop in the communication services sector. The small-cap Russell 2000 index fell 2.5%.

* The S&P 500 growth stock index , which houses interest-rate-sensitive growth and technology stocks, fell 3% as Treasury yields rose.

* Large-cap tech stocks Apple Inc (NASDAQ: AAPL ) and Microsoft Corp (NASDAQ: MSFT ) each fell more than 2.3%, while Tesla (NASDAQ: TSLA ) Inc, Alphabet (NASDAQ: GOOGL ) Inc , Amazon.com Inc (NASDAQ: AMZN ) and Meta (NASDAQ: META ) Platforms Inc all fell 2.7% to 5.6%, the heaviest drags on the S&P 500 and Nasdaq.

* The Labor Department’s consumer price index (CPI) showed that the monthly CPI rose 0.1% in August from July, versus expectations for a 0.1% decline. In year-on-year terms, it rose 8.3%, more than the 8.1% expected by economists, according to a Reuters poll.

* Excluding volatile food and energy components, the core CPI rose to 6.3% from 5.9% in July, putting further pressure on the Federal Reserve to continue its pace of rate hikes .

* “The long-term view is pretty clear: Monetary policy is a very blunt instrument, and anyone who thinks that inflation will start to come down just because the Federal Reserve has raised rates a couple of times is pretty ignorant of how monetary policy works.” the economy,” said Doug Fincher, portfolio manager at Ionic Capital Management.

* Last week, policy makers reiterated their determination to keep raising rates until inflation, which is at a 40-year high and above the 2% target set by the Federal Reserve, subsides.

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* Money markets now see an 81% chance of a 75 basis point rate hike and a 19% chance of a 100 basis point hike at the Fed’s September 20-21 meeting, plus expect rates to reach a maximum around 4.28% in March 2023.

* The Dow Jones Industrial Average fell 872.79 points, or 2.70%, to 31,508.55 points, the S&P 500 lost 127.20 points, or 3.09%, to 3,983.21, and the fell 482 .53 points, 3.93%, to 11,784.28 units.

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