(RightIsRight.co) – A new inflation report which has turned out to be worse than expected caused the US stock market to suffer its biggest decline in over two years this week, with all three major stock indexes plunging substantially due to a quick sell-off.
The massive trouble on Wall Street got triggered by the announcement of the Labor Department that its consumer price index (CPI) rose by 6.3% in August, an even steeper hike compared with the 5.9% increase in July.
The higher-than-expected inflation cut short what was thought to be a cooling trend, dashing hopes that the Federal Reserve could ease up on its policy-tightening interest rate hikes past September, Newsmax reported.
The steep decline of the Wall Street indices stopped a streak of four consecutive days of growth as they registered their biggest one-day percentage drops since the start of the coronavirus pandemic in the spring of 2020.
Preliminary data shows that the S&P 500 slumped by 4.32%, or 177.72 points, to end at 3,932.69 points.
The Nasdaq Composite lost 5.16%, or 631.41 points, ending the session at 11,635.01.
The Dow Jones Industrial Average fell by 3.97%, declining by 1,285.66 points down to 31,095.68.
The S&P 500’s eleven major sectors ended Tuesday “deep in red territory,” the biggest declines observed in tech and the tech subset semiconductor sector, consumer discretionary, and communications services.
Interest-rate-sensitive tech and tech-adjacent market leaders such as Apple Inc., Microsoft Corp, and Amazon.com Inc. took some of the biggest hits.
“[The sell-off] is not a surprise given the rally running up to the data,” commented Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
“[That points to] very persistent inflation and means the Fed is going to remain engaged and raise rates. And that’s an anathema to equities,” he added.
The FedWatch tool by the CME Group shows “the financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion” of next week’s meeting of the Federal Open Market Committee. It gives “an 18% probability of a super-sized, full-percentage-point increase to the Fed funds target rate.”
“The Fed has increased (interest rates) by three full percentage points in the last six months. We have not yet felt the full impact of all those increases. But we will feel it. We are at recession’s doorstep,” Nolte declared.
He thus underscored concerns that a longer period of Fed’s policy tightening may cause the economy to enter a recession.
Against that backdrop, the inversion of yields on two-year and 10-year Treasury notes widen further – and those are considered a red flag of an impending recession.
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