With a 1,000-point drop as losses accelerate, stocks face the worst session since mid-June

The Dow tumbled more than 1,000 points towards last trading hour Tuesday as losses rose led by tech stocks as bond yields soared, leaving all three equity benchmarks on track for their worst session at least since. mid-June following an unexpected rise in consumer price inflation in August.

What is happening
  • The Dow Jones Industrial Average DJIA,
    it fell 1,070 points, or 3.3%, to 31,307.

  • The S&P 500 SPX,
    it fell 148 points, or 3.6%, to 3,961.

  • The Nasdaq Composite COMP,
    it dropped 544 points, or 4.5%, to 11,719.

Popular indexed listed funds, including SPDR S&P 500 ETF Trust SPY,
and SPDR Dow Jones Industrial Average Trust ETF DIA,
they fell sharply in line with their benchmarks. The Nasdaq-100 NDX focused on technology,
and Invesco QQQ Trust ETF QQQ,
they fell by 4%.

Both the S&P 500 and Nasdaq are on track for their biggest percentage point drop since June 13, while the Dow is on track for its biggest drop since May 18 and its first drop of more than 1,000 points since June 26. August.

The S&P 500 was up 5.2% during a four-day winning streak that lasted until the close on Monday.

What is driving the markets

The August Consumer Price Index, or CPI, rose 0.1% in August, although the year-on-year rate slowed to 8.3% from 8.5% in July. Economists had been looking for a 0.1% monthly drop that would bring the year-on-year rate to 8%.

However, the core rate, which excludes food and energy price volatility, increased by 0.6%, a 6.3% year-over-year increase, exceeding expectations for a 0.3% monthly increase and a year-over-year rate of 6%.

See: US inflation roared back in August, CPI shows, despite falling gas prices

The idea that inflation could be stickier than economists expected – which in turn could force the Federal Reserve to hold on to its aggressive monetary tightening longer – was enough to send equities haywire. US with increasing volatility, with the CBOE Volatility Index, otherwise known as “the VIX”, VIX,
+ 10.77%
increase of over 8% to 25.9 in afternoon trade.

“The markets were rocked by a bad CPI press this morning and are responding kindly,” said Cliff Hodge, Chief Investment Officer of Cornerstone Wealth in Charlotte, NC. “The failures on both the stock and the core are disappointing as this bout of inflation proves anything but ‘transitory’. Unfortunately for the markets, this print will reinforce the need for the Fed to remain aggressive and will likely keep a lid on risky assets for the foreseeable future. “

The data reinforces expectations that the Federal Reserve will raise the federal funds rate by another 75 basis points when it meets next week, with federal funds futures approaching the external prospect of a 100 basis point hike. Treasury yields increased, with the rate on the 2-year note sensitive to monetary policy BX: TMUBMUSD02Y rising more than 19 basis points to trade at 3.758%, close to the high of the last 15 years, and further inverting the curve of the yields, a phenomenon considered a reliable indicator of recession.

“Today’s inflation print isn’t the data the Fed wanted to see the week before them make a meaningful decision on the benchmark rate, “said Charlie Ripley, Senior Investment Strategist at Allianz Investment Management in Minneapolis, MN.” With core inflation growing twice as fast as the economist’s expectations and the annualized inflation rate , which excludes food and energy, rises to 6.3%, the Fed clearly has its job for them to do. ”

“Overall, inflation readings remain unacceptably high for policy makers. Coupled with a still strong job market, the data seal the deal for another aggressive rate hike of 75 basis points next week, ”Rubeela Farooqi, US chief economist at High Frequency Economics, said in a statement.

See: Any lingering doubts that the Fed will do great with the next rate move has now vanished

The US dollar also strengthened on the back of higher yields, with the ICE US Dollar DXY Index,
+ 1.40%,
an indicator of the greenback’s strength against a basket of its main rivals, it rose 1.3% to 109.72.

Companies at the center
  • Tech stocks Megacap and advocates of consumer discretion helped lead Tuesday’s selloff as “value” plays as if the consumer staples sector outperformed. The Apple company.
    Microsoft Inc.
    Amazon.com Inc.
    Alphabet Inc.
    And Tesla Inc.
    they were all down 4% or more.

  • So-called unprofitable tech names like those held in the Stock exchange fund for ARK innovation
    were among the worst results on Tuesday. The ARK ETF fell 6.6%.

  • Oracle Corp.
    Late Monday reported lower-than-expected earnings late Monday, and executives’ profit forecasts were also lower than analysts expected as a strengthening dollar took its toll. Oracle shares rose slightly in afternoon trading, erasing previous losses.

  • Peloton Interactive Inc.
    On Monday he said he accepted the resignations of co-founders John Foley and Hisao Kushi, the latest leadership jolt to hit the troubled interactive fitness company. The shares fell more than 10%.

  • Online clothing rental platform Rent the Runway Inc.
    on Monday it announced plans to cut company staff after summer demand faltered. The shares fell 32.6%.

  • Only a handful of S&P 500 companies were holding on to earnings for the day Tuesday afternoon, inclusive Twitter Inc. and four stocks of materials: Albermarle Corp.
    + 0.91%,
    Corteva Inc.
    + 1.30%,
    CF Industries Holdings Inc.
    + 0.74%
    And Company of the Mosaic
    + 0.23%.
    All 11 sectors of the S&P 500 were trading in red.

—Steve Goldstein contributed to this article.

Listen to Ray Dalio at the Best New Ideas in Money Festival on September 21st and 22nd in New York. The hedge fund pioneer has solid views on where the economy is heading.


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