By Joseph Adinolfi and William Watts
The Dow Jones Industrial Average closed nearly 1,300 points lower Tuesday as technology stocks led the market to its worst day since June 11 2020, following an unexpected uptick in August consumer-price inflation.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.10% dropped 1,276.37 points, or 3.9%, to end at 31,104.97.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.12% shed 177.72 points, or 4.3%, ending at 3,932.69.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.18% tumbled 632.84 points, or 5.2%, to close at 11,633.57.
That was the biggest daily percentage fall for all three indexes since June 11, 2020, according to Dow Jones Market Data.
Popular index-tracking exchange-traded funds, including the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY -0.12% and the SPDR Dow Jones Industrial Average Trust ETF /zigman2/quotes/208954582/composite DIA +0.10% fell 4% or more. The tech-concentrated Nasdaq-100 /zigman2/quotes/210598364/realtime NDX -0.40% and the Invesco QQQ Trust ETF /zigman2/quotes/208575548/composite QQQ -0.40% both shed 5.5%.
What drove markets
All 11 S&P 500 sectors finished in the red after the August consumer-price index, or CPI, rose 0.1% in August . Though the year-over-year rate slowed to 8.3% from 8.5% in July, economists had been looking for a monthly fall of 0.1% that would bring the year-over-year rate down to 8%.
Meanwhile, the core rate, which strips out volatile food and energy prices, rose 0.6%, for a year-over-year rise of 6.3%, outstripping expectations for a 0.3% monthly rise and a 6% year-over-year pace.
That stoked fears that inflation may be stickier than economists had expected — which in turn might force the Federal Reserve to maintain its aggressive tightening of monetary policy for longer, or at least preclude a pivot back to lower interest rates.
As stocks spiraled lower, losses accelerating in the final hour of trade, causing volatility to surge, with the Cboe Volatility Index, otherwise known as “the VIX,” /zigman2/quotes/210598281/delayed VIX -3.93% rising more than 16% to 27.79.
“Markets were jolted by a nasty CPI print this morning and are responding in kind”, said Cliff Hodge, Chief Investment Officer for Cornerstone Wealth in Charlotte, North Carolina. “Misses on both headline and core are disappointing as this bout of inflation proves to be anything but ‘transitory.’ Unfortunately for markets this print will reinforce the need for the Fed to remain aggressive and will likely keep a lid on risk assets over the foreseeable future.”
The data is seen cementing expectations the Federal Reserve will boost the fed-funds rate by another outsize 75 basis points when it meets next week, with fed-funds futures penciling in roughly 40% odds of a 100 basis-point hike.
The yield on the policy-sensitive 2-year note BX:TMUBMUSD02Y surged 18.3 basis points to 3.754%, touching its highest level in nearly 15 years, and further inverting the yield curve — a phenomenon seen as a reliable recession indicator.