Stocks fell sharply on Tuesday after a key August inflation report came in at a higher-than-expected level, hurting investor optimism for lower prices and a less aggressive Federal Reserve.
The Dow Jones Industrial Average fell 720 points, or 2.2%. The S&P 500 fell 2.6% and the Nasdaq Composite fell 3.4%.
More than 480 S&P 500 stocks fell, Facebook parent Meta fell 5.5% and Caesars Entertainment lost 5.7%.
August’s consumer price index report showed a higher-than-expected inflation reading. Headline inflation rose 0.1% month-on-month, even as gas prices fell. Core inflation increased by 0.6% month-on-month. In year-on-year inflation was 8.3%.
Economists polled by the Dow Jones expected a 0.1% decline for headline inflation, with a 0.3% increase for core inflation.
The report is one of the last the Fed will see before its Sept. 20-21 meeting, where the central bank is expected to make its third consecutive 0.75 percentage point interest rate hike to curb the inflation The unexpectedly high August report could lead the Fed to continue its aggressive rate hikes longer than some investors expected.
The moves come after four straight positive sessions for US stocks, which were bolstered in part by many investors’ belief that inflation had already peaked.
“The CPI report was an unequivocal negative for equity markets. The hotter-than-expected report means we get continued pressure from Fed policy through rate hikes,” he said Matt Peron, director of research at Janus Henderson Investors. “It also sets back any ‘Fed pivot’ that markets were expecting in the near term. As we’ve warned over the past few months, we’re not out of the woods yet and would maintain a defensive stance with equity and sector allocations.”