ALL NEWS

Stocks tumble after inflation stays hotter than expected

Sep 13, 2022, 8:52 AM | Updated: Sep 20, 2022, 9:27 am
Plunging stocks shake up the street...
Stocks plunged on Wall Street Tuesday morning. (Photo by Scott Heins/Getty Images)
(Photo by Scott Heins/Getty Images)

NEW YORK (AP) — Stocks are tumbling and disappointment is hitting markets worldwide Tuesday, following Wall Street’s sudden realization that inflation isn’t slowing as much as hoped.

The S&P 500 sank 2.4% in morning trading, threatening to snap a four-day winning streak. Bond prices also fell sharply, sending their yields higher, after a report showed inflation decelerated to 8.3% in August, instead of the 8.1% economists expected.

The disappointing data means traders are bracing for the Federal Reserve to ultimately raise interest rates even higher than expected to combat inflation, with all the risks for the economy that entails.

“Right now, it’s not the journey that’s a worry so much as the destination,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “If the Fed wants to hike and hold, the big question is at what level.”

The Dow Jones Industrial Average lost 685 points, or 2.1%, to 31,696, as of 10:20 a.m. Eastern time, and the Nasdaq composite dropped 3.1%. Big tech names saw solid declines all 11 sectors in the S&P 500 fell.

Almost all of Wall Street came into the day thinking the Fed would hike its key short-term rate by a hefty three-quarters of a percentage point at its meeting next week. But the hope was that inflation was in the midst of quickly falling back to more normal levels after peaking in June at 9.1%.

The thinking was that such a slowdown would let the Fed downshift the size of its rate hikes through the end of this year and then potentially hold steady through early 2023.

Tuesday’s report dashed some of those hopes. Many of the data points within it were worse than economists expected, including some the Fed pays particular attention to, such as inflation outside of food and energy prices. Markets honed in on a 0.6% rise in such prices during August from July, double what economists expected.

“This suggests that inflation expectations may be becoming ingrained,” said Gargi Chaudhuri, head of investment strategy at iShares.

The inflation figures were so much worse than expected that traders now see a one-in-five chance for a rate hike of a full percentage point by the Fed next week. That would be quadruple the size of the usual move, and no one in the futures market was predicting such a hike a day earlier.

Traders now see a better than 60% likelihood the Fed will pull its federal funds rate all the way up to a range of 4.25% to 4.50% by March. A day earlier, they saw less than a 17% chance of such a high rate, according to CME Group.

The Fed has already raised its benchmark interest rate four times this year, with the last two increases by three-quarters of a percentage point. The federal funds rate is currently in a range of 2.25% to 2.50%.

Higher rates hurt the economy by making it more expensive to buy a house, a car or anything else bought on credit. Mortgage rates have already hit their highest level since 2008, creating pain for the housing industry. The hope is that the Fed can pull off the tightrope walk of slowing the economy enough to snuff out high inflation, but not so much that it creates a painful recession.

In the meantime, higher rates also push down on prices for stocks, bonds and other investments. Investments seen as the most expensive or the riskiest are the ones hardest hit by higher rates, and bitcoin tumbled tumbled 5.3%.

In the stock market, all but a dozen of the stocks in the S&P 500 fell. Technology and other high-growth companies fell more than the rest of the market because they’re seen as most at risk from higher rates.

Apple, Microsoft and Amazon all fell more than 3.3% and were the heaviest weights on the market. The communication services sector, which includes Google’s parent company and other internet and media companies, sank 3.9% for the largest loss among the 11 sectors that make up the S&P 500 index.

The inflation report arrived before trading began on Wall Street, but it sent a thud through markets worldwide.
Treasury yields immediately leaped on expectations for a more aggressive Fed. The yield on the two-year Treasury, which tends to track expectations for Fed actions, leaped to 3.72% from 3.57% late Monday. The 10-year yield, which helps dictate where mortgages and rates for other loans are heading, rose to 3.43% from 3.36%.

Stock markets in Europe, meanwhile, veered from gains to losses. The German DAX was down 1%, and the French CAC 40 fell 0.8%.

Expectations for a more aggressive Fed also helped the dollar add to its already strong gains for this year. The dollar has been surging against the euro, Japanese yen and other currencies in large part because the Fed has been hiking rates faster and by bigger margins than many other central banks.

An index measuring the value of the dollar against several major currencies rose 0.8%

Today’s Top Stories

All News

Picture reads scam alert! missed jury scam targeting utahns....
Mark Jackson

Federal, state authorities warn of return of missed jury duty, outstanding warrant scam

Officials are warning Utahns -- and those is surrounding states -- about a missed jury or warrant scam that aims to get money out of victims.
9 hours ago
Coolio, the '90s rapper who lit up the music charts with hits like "Gangsta's Paradise" and "Fantas...
Sandra Gonzalez, CNN

Coolio, ‘Gangsta’s Paradise’ rapper, dead at 59

(CNN) — Coolio, the ’90s rapper who lit up the music charts with hits like “Gangsta’s Paradise” and “Fantastic Voyage,” has died, his friend and manager Jarez Posey, told CNN. He was 59. Posey said Coolio died in the afternoon hours local time in Los Angles on Wednesday. Details on the circumstances were not immediately […]
9 hours ago
The Vivint Arena in Salt Lake City is pictured on Tuesday, May 24, 2022. (Kristin Murphy, Deseret N...
Lindsay Aerts

Silicon Summit announces statewide expansion

Silicon Summit will announce their plans for expansion. Starting next year, the two-day summit will be held over one week.
9 hours ago
Utahns head to Florida to aid in relief from Hurricane Ian....
Aubri Wuthrich

Utahns volunteer with American Red Cross to aid hurricane evacuees in Florida

The American Red Cross has volunteers on the ground in Florida to assist in the aftermath of Hurricane Ian.
9 hours ago
Hurricane Tropical Storm Sally...
Amanda Dickson

Hurricane days were like snow days

For those who have spent time in Florida, like KSL NewsRadio's Amanda Dickson, hurricane days are much like snow days here in Utah.
9 hours ago
Hurricane Ian flooding in Naples, Florida....
Amir Vera, Eric Levenson, Jason Hanna and Nouran Salahieh, CNN

Hurricane Ian weakens to Category 3 after making landfall in Florida, but officials warn the worst is yet to come

Hurricane Ian has weakened to a Category 3 storm hours after pummeling southwestern Florida Wednesday, but officials are warning people to stay inside as the worst of the storm is still on the way.
1 day ago

Sponsored Articles

Young woman receiving laser treatment...
Form Derm Spa

How facial plastic surgery and skincare are joining forces

Facial plastic surgery is not only about looking good but about feeling good too. The medical team at Form Spa are trained to help you reach your aesthetic outcomes through surgery and through skincare and dermatology, too.
large group of friends tohether in a park having fun...
BYU MBA at the Marriott School of Business

What differentiates BYU’s MBA program from other MBA programs

Commitment to service is at the heart of BYU’s MBA program, which makes it stand out among other MBA programs across the country.
a worker with a drill in an orange helmet installs a door in the house...
Price's Guaranteed Doors

Home improvement tip: Increase the value of your home by weatherproofing doors

Make sure your home is comfortable before the winter! Seasonal maintenance keeps your home up to date. Read our tips on weatherproofing doors.
Curb Appeal...
Price's Guaranteed Doors

How to have the best of both worlds for your house | Home security and curb appeal

Protect your home and improve its curb appeal with the latest security solutions like beautiful garage doors and increased security systems.
A paper reading IRS, internal revenue service is pictured...
Jordan Wilcox

The best strategies for dealing with IRS tax harassment | You have options!

Learn how to deal with IRS tax harassment. This guide will teach you how to stop IRS phone calls and letters, and how to handle an IRS audit.
spend a day at Bear Lake...
Bear Lake Convention and Visitors Bureau

You’ll love spending the day at Bear Lake | How to spend a day at Bear Lake

Bear Lake is a place that needs to be experienced. Spend a day at Bear Lake.
Stocks tumble after inflation stays hotter than expected