All three major U.S. stock indexes veered sharply lower, snapping four-day winning streaks
Author of the article:
U.S. stock indexes fell sharply on Tuesday, snapping a four-day winning streak, after data showed monthly U.S. consumer prices unexpectedly rose in August. Photo by REUTERS/Brendan McDermid/File Photo NEW YORK — A broad sell-off sent U.S. stocks reeling on Tuesday after a hotter-than-expected inflation report dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the coming months.
Advertisement 2 This advertisement has not loaded yet, but your article continues below.
All three major U.S. stock indexes veered sharply lower, snapping four-day winning streaks and notching their biggest one-day percentage drops since June 2020 during the throes of the COVID-19 pandemic.
Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300
Surging risk-off sentiment pulled every major sector deep into negative territory, with interest-rate-sensitive tech and tech-adjacent market leaders, led by Apple Inc, Microsoft Corp and Amazon.com Inc weighing heaviest.
“(The sell-off) is not a surprise given the rally running up to the data,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
The Labor Department’s consumer price index (CPI) came in above consensus, interrupting a cooling trend and throwing cold water on hopes that the Federal Reserve could relent after September and ease up on its interest rate hikes.
Advertisement 3 This advertisement has not loaded yet, but your article continues below.
Core CPI, which strips out volatile food and energy prices, increased more than expected, rising to 6.3 per cent from 5.9 per cent in July.
The report points to “very persistent inflation and that means the Fed is going to remain engaged and raise rates,” Nolte added. “And that’s an anathema to equities.”
Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC’s policy meeting next week, with a 32 per cent probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME’s FedWatch tool.
“The Fed has increased (interest rates) by three full percentage points in the last six months,” Nolte said. “We have not yet felt the full impact of all those increases. But we will feel it.”
Advertisement 4 This advertisement has not loaded yet, but your article continues below.
“We are at recession’s doorstep.”
Worries persist that a prolonged period of policy tightening from the Fed could tip the economy over the brink of recession.
The inversion of yields on two- and 10-year Treasury notes, regarded as a red flag of impending recession, widened further.
The Dow Jones Industrial Average fell 1,276.37 points, or 3.94 per cent, to 31,104.97, the S&P 500 lost 177.72 points, or 4.32 per cent, to 3,932.69 and the Nasdaq Composite dropped 632.84 points, or 5.16 per cent, to 11,633.57.
All 11 major sectors of the S&P 500 ended the session deep in red territory.
Communications services, consumer discretionary and tech shares all plummeted more than five per cent, while the tech subset semiconductor sector sank 6.2 per cent.
Advertisement 5 This advertisement has not loaded yet, but your article continues below.
Declining issues outnumbered advancing ones on the NYSE by a 7.76-to-1 ratio; on Nasdaq, a 3.64-to-1 ratio favored decliners.
The S&P 500 posted 1 new 52-week high and 16 new lows; the Nasdaq Composite recorded 29 new highs and 163 new lows.
Volume on U.S. exchanges was 11.58 billion shares, compared with the 10.33 billion average over the last 20 trading days.
Canada’s main stock index on Tuesday also posted its biggest decline in nearly three months.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 341.83 points, or 1.7 per cent, at 19,645.40, its biggest decline since June 16. It follows four straight days of gains.
© Thomson Reuters 2022
With files from Fergal Smith