A broad sell-off left U.S. equities reeling on Tuesday as a difficult inflation report shattered hopes that the Federal Reserve could pause and pull back its policy strengthening in the coming months.
A four-day winning streak was broken and all three of the major U.S. market indices made their largest one-day percentage declines since June 2020, when the COVID-19 pandemic was in full swing.
Every major industry was deeply affected by the escalating risk-off mood, but the interest rate-sensitive tech and tech-related market leaders, anchored by Apple Inc (AAPL.O), device-hotshot Microsoft Corp (MSFT.O), and Amazon.com Inc (AMZN.O), weighed the most heavily.
Given the surge leading up to the data, the sell-off is not unexpected, according to Paul Nolte, portfolio manager of Kingsview Asset Management in Chicago.
Consumer price index (CPI) data from the Labor Department exceeded expectations, breaking a cooling trend and dash hopes that the Fed would back down and stop raising interest rates after September.
The core CPI, which excludes volatile energy and food costs, rose more than anticipated, from 5.9% in July to 6.3% today.
According to the research, there has been very persistent inflation, and as a result, Nolte continued, the Fed will continue to intervene and hike rates. And that is forbidden for stocks.
Following the FOMC’s meeting held next week, financial markets have entirely priced in an interest rate increase of at least 75 basis points, with a 32% possibility of a super-sized, full percentage hike to the Fed funds inflation target, based on CME’s FedWatch tool.
Nolte claimed that the Fed raised interest rates in the last six months by a whole three percentage points. Although they have not yet fully experienced the effects of all those increases, they are undoubtedly sensed.
On September 13, 2022, a trader on the trading floor of the New York Stock Exchange (NYSE) in business-hub Manhattan, New York City, United States, looks at a screen that displays the Dow Jones Industrial Average.
The recession is about to hit several economies.
There are still concerns that an extended period of the Fed’s tightening of policy could push the economy into a recession.
The two-year and 10-year Treasury note yield inversion, which is viewed as a warning sign of an imminent recession, grew wider.
The S&P 500 (.SPX) dropped 177.72 points, or 4.32%, to 3,932.69, the Nasdaq Composite (.IXIC) lost 632.84 points, or 5.16%, to 11,633.57, and the Dow Jones Industrial Average (.DJI) dropped 1,276.37 points, or 3.94%, to 31,104.97.
The S&P 500’s 11 major sectors all finished the session in the red.
Shares of the communications services (.SPLRCL), as well as the consumer discretionary (.SPLRCD), and technology (.SPLRCT) sectors all fell more than 5%, while the semiconductor sector (.SOX), a component of the technology sector, fell 6.2%.
On the NYSE, declining issues outnumbered rising ones by a ratio of 7.76 to 1; on the Nasdaq, the ratio was 3.64 to 1.
The Nasdaq Composite had 29 new highs among 163 new lows, while the S&P 500 saw just one new 52-week high & 16 new lows.
11.58 billion shares were traded on American markets, exceeding the 10.33 billion averages for the previous 20 trading days.
Post still-struggling imports and exports crises in several economies after the Russian sanctions which still remain hot, the countries now face more demanding threats besides overseas’ transactions, with the looming dread of inflation only worsening thus far. The Fed may be able to set further examples for central banks to follow before the conclusion of the year.