Wall Street plunges as inflation data fuels big rate hike bets

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  • US consumer prices rise more than expected in August
  • Traders see small chance of 100 basis point rate hike next week
  • Indices slide: Dow 2.62%, S&P 2.98%, Nasdaq 3.84%

Sep 13 (Reuters) – U.S. stocks tumbled on Tuesday, with tech stocks hardest hit, after data showed monthly consumer prices rose unexpectedly in August, cementing bets of a third consecutive 75 basis point rate hike from the Federal Reserve next week .

The Fed has raised borrowing costs faster this year than at any time since the 1980s, showing its determination to keep raising rates until there is a sustained decline in inflation, which has reached 40-year highs and above the Fed’s 2% target. .

The Labor Department’s Consumer Price Index (CPI) report showed the monthly CPI rose 0.1% in August from July, against an expectation of a 0.1 fall. %. Excluding the volatile food and energy components, core CPI rose to 6.3% from 5.9% in July. Read more

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“Until we get inflation prints, not just one, but two, three, maybe four, that are steadily falling, that’s when we can call it a trend and the Fed can feel reassured to at least take a break,” said Mona Mahajan, senior investment strategist at Edward Jones.

All eyes are now on the Producer Price Index report due on Wednesday.

All 11 S&P sectors fell, led by a 4.3% drop in the communication services sector (.SPLRCL). The Russell 2000 Small Cap Index (.RUT) fell 2.9%.

The S&P 500 Growth Stock Index (.IGX), home to rate-sensitive tech and growth stocks, fell 3.8% as Treasury yields rose, while its value counterpart ( .IVX) lost 2.2%.

Mega-cap tech stocks Apple Inc (AAPL.O), Microsoft Corp (MSFT.O) and Tesla Inc (TSLA.O) fell 4.1% each, while Alphabet Inc (GOOGL.O), Amazon .com Inc (AMZN.O) and Meta Platforms Inc (META.O) slipped between 4.8% and 7.4%.

Money markets are now pricing in a rate hike of at least 75 basis points, with a 23% chance of a huge 100 basis point hike by the Fed at its September 20-21 meeting, while still expecting rates to peak at around 4.28% in March 2023.

“Initially, everyone was convinced that the Fed was going to try to raise, say, 3.5% or 4%, and we were really concerned about the trip to that destination. But now it seems that the destination is now a little more in question,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“The big risk is that next week the Fed tries to convince the markets that they’re not just going to try to go 4% with the fed funds rate, but that they might push it to something more. close to four and a half percent.”

As of 12:09 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 848.07 points, or 2.62%, at 31,533.27, the S&P 500 (.SPX) was down 122.57 points, or 2.98%, to 3,987.84, and the Nasdaq Composite (.IXIC) lost 470.90 points, or 3.84%, to 11,795.51.

The spread between two- and ten-year bond yields, often seen as an indicator of an impending recession, reversed further. Rate-sensitive bank stocks (.SPXBK) fell 2.8%.

All three major indexes had rallied over the past four sessions as investors benefited from a sharp decline in share prices since mid-August, triggered by worries about soaring inflation and the impact of tighter monetary policy to curb it.

The CBOE Volatility Index (.VIX), also known as the Wall Street Fear Gauge, hit 25.74 points.

Falling issues outnumbered advances by a 9.56-to-1 ratio on the NYSE and by a 4.31-to-1 ratio on the Nasdaq.

The S&P index recorded a new 52-week high and a new low, while the Nasdaq recorded 19 new highs and 105 new lows.

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Reporting by Devik Jain, Ankika Biswas in Bengaluru and Sinead Carew in New York; Editing by Shounak Dasgupta and Anil D’Silva

Our standards: The Thomson Reuters Trust Principles.

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