Low volumes and slight gains reflect the market today, after yesterday’s sharp drop, the worst since June 2020 for the three main stock indices, after the U.S. inflation report drastically shook expectations for that prices were cooling.
The US CPI report buried any possibility that the US Federal Reserve would relent in its aggressive policy of liquidity restriction, and stocks plummeted. The drop wiped more than $1.5 trillion worth of value from the S&P 500 index , according to a Bloomberg report.
The Dow Jones sank more than 1,200 points this Tuesday, almost 4%, the S&P 500 fell 4.3%, while the Nasdaq lost 5.2%.
Although inflation in August was expected to maintain the downward trend it showed in July, the index rose 8.3% above the 8% expected. And the underlying -or core-, the indicator most expected by investors, soared twice as much as estimated.
“This report put cold water on a construction market narrative that a possible easing in inflation data could provide the Fed with cover to ease its aggressive tightening campaign,” quotes YahooFinance a note to clients by Keith Lerner, chief strategist of the market of the financial firm Truist Advisory Services.
Indeed, the probability that the Fed will make a third major 75 basis point rate adjustment at its next meeting on September 21 is now virtually complete. But it also presents the possibility that interest will even exceed 4% by the end of the year.
It seems that the market recovery will have to wait for more convincing data regarding the downward trend in inflation. Meanwhile, uncertainty regarding economic performance will continue to drive volatility.
For now, the major indices are looking for direction and trying to recover, with the Dow Jones up 76 points or 0.24% two hours after opening, the S&P 500 up 15 points or 0.39% and the Nasdaq up 73 points or 0.64%. Worst crash since June 2020 wiped out $1.5 trillion. green market today