Wall Street collapses as inflation figures fuel bets on major rate hikes

13 Sept. (Reuters) – US stock indices fell sharply on Tuesday, breaking a four-day winning streak after data showed monthly US consumer prices rose unexpectedly in August, confirming bets on the Federal Reserve’s third consecutive 75 basis point rate hike. Book next week.

All 11 S&P sectors fell in early trading, led by a 3.3% slump in the communications services sector (.SPLRCL). The small-cap Russell 2000 index (.RUT) fell 2.5%.

The S&P 500 Growth Stock Index (.IGX), which houses price-sensitive technology and growth stocks, fell 3% as government bond yields rose, while its value counterpart (.IVX) lost 1.6%.

Mega-cap technology stocks Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O) each fell more than 2.3%, while Tesla Inc (TSLA.O), Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN .O) and Meta Platforms Inc (META.O) fell between 2.7% and 5.6% to weigh the most on the S&P 500 and the Nasdaq.

The Department of Labor’s Consumer Price Index (CPI) report shows that the monthly CPI rose 0.1% in August from July, against expectations of a 0.1% dip. Year-over-year it rose 8.3%, while economists expected an 8.1% increase, according to a Reuters poll. read more

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

“The longer-term view here is pretty clear that monetary policy is a very blunt instrument and anyone who thought inflation was going to roll just because the Fed hiked a few times is pretty ignorant of the way the economy works.” said Doug Fincher, portfolio manager at Ionic Capital Management.

Policymakers last week emphasized their determination to continue raising rates until there is a sustained decline in inflation, which is at a 40-year high and above the Fed’s target of 2%.

Money markets now see an 81% chance of a 75 basis point rate hike and a 19% chance of a whopping 100 bps hike by the Fed at its September 20-21 meeting, while expecting interest rates to rise in March. peak of around 4.28% will reach 2023.

The dollar, which has risen sharply this year, partly on the back of expectations of aggressive rate hikes by the Fed, wiped out losses early in the morning and rose 1%.

The gap between two- and 10-year bond yields, often seen as an indicator of an impending recession, continued to widen. The price sensitive bank shares (.SPXBK) fell 2%.

At 9:46 a.m. ET, the Dow Jones Industrial Average (.DJI) fell 606.02 points, or 1.87%, at 31,775.32, the S&P 500 (.SPX) fell 94.40 points, or 2.30% , at 4,016.01, and the Nasdaq Composite (.IXIC) fell 376.36 points, or 3.07%, to 11,890.06.

The three main indices had risen recently as investors benefited from a sharp decline in stock prices since mid-August driven by concerns about rising inflation and the impact of tightening monetary policy to contain it.

Eastman Chemical (EMN.N) fell 5% after the company forecast dismal third-quarter earnings, citing a slowdown in demand in the consumer durables market, higher costs and a blow from a stronger dollar.

The CBOE Volatility Index (.VIX), also known as the Wall Street fear meter, rose to 24.97 points.

The number of declining issues outpaced the avant-garde with an 11.92-to-1 ratio on the NYSE and a 6.29-to-1 ratio on the Nasdaq.

The S&P index did not record a new 52-week high and no new low, while the Nasdaq recorded 9 new highs and 62 new lows.

Reporting by Devik Jain and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta

Our Standards: The Thomson Reuters Trust Principles.