NEW YORK – Wall Street’s three major averages plummeted on Tuesday as a hotter-than-expected US inflation report stoked fears that the Federal Reserve is likely to deliver more outsized rate hikes, reported Xinhua.
The Dow Jones Industrial Average tumbled 1,276.37 points, or 3.94 per cent, to 31,104.97. The S&P 500 dropped 177.72 points, or 4.32 per cent, to 3,932.69. The Nasdaq Composite Index shed 632.84 points, or 5.16 per cent, to 11,633.57.
All three major indexes posted their worst daily performance since June 2020.
Tuesday’s sell-off was steep and broad. All the 11 primary S&P 500 sectors ended in red, with communication services and technology down 5.63 per cent and 5.35 per cent, respectively, leading the losses.
The Cboe Volatility Index, widely considered the best fear gauge in the stock market, spiked 14.24 per cent to 27.27.
The US Labour Department reported Tuesday that the country’s consumer price index (CPI) rose 0.1 per cent in August for an 8.3 per cent year-over-year increase. The core CPI, which excludes food and energy, rose 0.6 per cent for a 6.3 per cent year-over-year increase.
Economists polled had been expecting a monthly fall of 0.1 per cent for overall inflation and a monthly rise of 0.3 per cent for core inflation.
“Falling gas prices weren’t enough to push down the headline index as much as expected, and broad gains in core prices are a reminder the Fed’s job is far from done,” Will Compernolle, senior economist at FHN Financial, said Tuesday in a note.
The August CPI data cemented another 75 basis point hike next week and boosted the likelihood of an aggressive hike in November, said Compernolle.
The Fed has been raising interest rates since March in a bid to tame inflation that’s running at multi-decade highs, but the data suggested that the efforts were not yet having much of an effect.
Fed officials continued to reiterate their commitment to policy tightening, even if it would damage the economy.
Their recent message suggested that the Fed will continue to hike rates and keep monetary policy “restrictive” for some time, pushing back against the idea of an early policy pivot.
Last week, Fed Chair Jerome Powell said that the central bank needed “to act now, forthrightly, strongly, as we have been doing, and we need to keep at it until the job is done.”
“The Fed is not yet ready for a dovish pivot,” said UBS analysts, adding “that the Fed will need to see several months of subdued month-over-month core inflation readings – along with further evidence of a cooling labour market – before softening its tone, and as of today these criteria have not been met.”
“With macroeconomic and policy uncertainty elevated, we expect markets to remain volatile in the months ahead,” they added.
Meanwhile, US-listed Chinese companies traded mostly lower on Tuesday with seven of the top 10 stocks by weight in the S&P U.S. Listed China 50 index ending the day on a downbeat note.
Shares of JD.com and BeiGene dropped 7.06 per cent and 6.26 per cent, respectively, leading the laggards in the top 10 stocks.
Shares of Li Auto and NIO went up 2.84 per cent and 1.01 per cent, respectively, leading the gainers in the index.
As of Monday, the S&P US Listed China 50 index, which is designed to track the performance of the 50 largest Chinese companies listed on US exchanges by total market cap, stood at 2,739.45, marking a 0.69-per cent decrease for the month-to-date returns and an 8.02-per cent loss for the year-to-date returns.
